On November 1, the financial world was shaken to its core when S&P Dow Jones Indices announced a major shake-up in the components of the Dow Jones Industrial AverageThis momentous decision was akin to a thunderclap in the market, drawing the attention of both investors and analysts alikeAs the sun set over Wall Street, the revelation overshadowed the usual bustle, highlighting the dynamic nature of the stock market.

In what could be likened to a financial drama, NVIDIA, a titan in the technology sector, particularly recognized for its advancements in artificial intelligence and semiconductor technology, will be stepping into the shoes previously occupied by Intel on the DowAdditionally, Sherwin-Williams is set to take the place of Dow Chemical in this index, often regarded as one of the "Big Three" in U.S. stock indicesThis significant transition is scheduled to take effect before the market reopens next Friday, November 8, indicating a fundamental shift in the representation of contemporary industries within the index.

The immediate aftermath of this announcement saw explosive reactions in the marketNVIDIA and Sherwin-Williams' after-hours stock prices surged beyond 3%, reflecting a robust optimism about their future potentialTheir stocks soared like rockets, reinforcing the market's high regard for their growth trajectoriesConversely, Intel and Dow Chemical experienced a downturn, with Intel's shares slipping nearly 2%, resembling an aircraft running out of fuel, slowly descending through turbulent skies; Dow Chemical experienced a more modest decline of just over 0.6%, finding itself somewhat overshadowed amid the revelry surrounding its replacement.

According to the press release, this adjustment is aimed at enhancing the representation of the semiconductor and materials sectors within the Dow Industrial AverageAnalysts have characterized the inclusion of NVIDIA as a significant overhaul of the index, one that mirrors the torrid pace at which artificial intelligence and the semiconductor industry are evolving.

NVIDIA, often dubbed the "picks and shovels" supplier of AI computing power, has seen its value skyrocket over the past two years

Advertisements

Just last year, its stock surged by an astounding 239%, followed by another notable leap of 173% this yearCurrently, NVIDIA boasts a market capitalization of $3.3 trillion, making it the second most valuable public company globally after Apple, cementing its status at the pinnacle of the tech industry.

With NVIDIA's entry into the Dow, four out of the six companies in the "trillion-dollar club" of U.S. equities have now found a place within the index, with only Google parent company Alphabet and Meta Platforms yet to make the cutNotably, Amazon had only joined this elite group back in February of this year, highlighting the rapid changes at the top echelons of corporate giants.

Back in May, NVIDIA executed a 10-for-1 stock split, strategically reducing its share price from above $1,000 to just over $100. This move raised eyebrows among analysts, who speculated that it might have been a preparatory step to enhance its suitability for inclusion in the prestigious index.

Unlike the market capitalization-weighted approach of the S&P 500, the Dow employs a price-weighted methodologyIn this scenario, the price fluctuations of higher-priced stocks exert a more significant influence on the index compared to their lower-priced counterpartsThis structural nuance explains the difficulty high-priced stocks face when vying for slots in the Dow, a barrier that NVIDIA has now shattered.

The impressive earnings reported by NVIDIA in August—showing a quarterly revenue exceeding $30 billion and marking a 122% year-on-year increase—highlight the company's solid performance, driven by surging demand for its H100 GPUs from fellow technology firmsTheir net profit climbed to $16.599 billion, a staggering increase of 168%.

In a recent statement, NVIDIA's CEO, Jensen Huang, remarked on the overwhelming demand for the company’s next-generation AI chip, Blackwell, claiming that interest was "insane" and that "everyone wants the most products possible, and everyone wants to be the first to receive their orders." This fervor surrounding next-generation technology underscores the pivotal role NVIDIA plays in the global tech ecosystem.

Contrastingly, Intel appears to be on a downward spiral, with its stock plummeting more than 53% this year alone

Advertisements

Advertisements

Advertisements

Advertisements