The Dow needs Nvidia because Intel's crash has left mid-caps underrepresented

At around $23 per share Intel is no longer a viable member of the Dow Jones Industrial Average.

This was the conclusion of the S&P Dow Jones committee, which decides when to make changes to the 30-member index, long considered an important barometer for the US economy.

After markets closed Friday, S&P said Intel was out. It will be replaced by a rival chip maker on November 8th Nvidiawhich has become the second most valuable public company in the world, just a hair behind Apple from Monday.

With the change, four of the tech industry's $6 trillion companies will be included in the Dow, along with the internet giants alphabet And Meta still outside. For these two companies, there are no obvious members to replace. Nvidia, on the other hand, recently overtook Intel as the chip manufacturer with the highest sales, thereby creating a clear one-to-one exchange opportunity.

A distinctive feature of the Dow is that it is a price-weighted index. That is, a stock's importance is based on its price, not the company's market capitalization. Intel has been overwhelmed by Nvidia in artificial intelligence while also losing share in its core PC and data center processor market. Intel's stock price has fallen by more than half this year, closing at $23.20 on Friday.

Intel is now by far the most insignificant member of the Dow, with a weighting of less than 0.5%. The next cheapest stock is Verizon at about $41. Since Intel is the only chipmaker in the index, the sector is underrepresented relative to its position in the economy.

“A big part of the decision is that the semifinals were not represented,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in an interview. “Industry representation and price are important.”

Nvidia shares have a positive impact on the company. Based on market capitalization, Nvidia would be disproportionately worth 18% in the index, but its share price will only give it the 21st highest weighting Chevron and before 3M. Nvidia positioned itself for entry into the Dow in May when the company announced a 10-for-1 stock split.

Silverblatt said the technology industry's weight in the Dow will rise from 18.9% to about 19.5%, although its market weight will be about 58%. This is accompanied by a larger change in weight Sherwin Williams join and replace the index at the same time Dow Inc.increasing the materials sector's share from less than 1% to about 5%, Silverblatt said.

As for Alphabet and Meta, the wait could be a long one. Amazon joined the Dow in January, giving the Internet sector greater representation in the index. Alphabet's position is somewhat complicated by the fact that both its Class A and Class C shares are publicly traded. Meta's price of nearly $562 would currently give it the strongest weighting in the Dow, just ahead UnitedHealth Group.

Given the tech industry's increased overall representation, there are no obvious moves that would include Silicon Valley's megacaps.

“To put one in, you have to take one out,” Silverblatt said. “It will be difficult to reach the Dow 31.”

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