Nvidia joins the Dow Jones Industrial Average. Will this “Magnificent Seven” stock be next?

It was bound to happen at some point.

Friday after the close of the stock market, S&P Global announced it Nvidia (NVDA 2.63%) would finally join Dow Jones Industrial Average (^DJI 2.99%). The AI ​​chip juggernaut has been the most valuable company not included in the blue-chip index for most of this year, and with its valuation hovering north of $3 trillion, it is now challenging Apple for the title of most valuable company in the world.

As seemed likely after Nvidia’s stock split, Nvidia will replace Intel (INTC 4.74%) in the Dow. So did S&P Global, which manages the Dow Jones Sherwin-Williams will replace the chemical giant Dow on the infamous index. S&P Global said the changes were “initiated to ensure a more representative exposure to the semiconductor industry and the materials sector, respectively.”

The Dow Jones manager also noted that the index is price-weighted, so lower prices have less of an impact on the index, and it noted that the Dow is the smallest company on the index by market capitalization.

Both Nvidia and Sherwin-Williams have share prices significantly higher than Intel and the Dow, respectively, so the move will increase the index’s exposure to both the semiconductor and materials sectors. The changes will be implemented before the opening of trading on November 8.

Image source: Getty Images.

Nvidia is in and Intel is out

Nvidia’s replacement for Intel on the Dow has been a long time coming. Intel has been the only pure-play semiconductor stock on the Dow, but the industry has gained increasing importance in the AI ​​era, and almost all chip stocks have risen — with the notable exception of Intel.

Nvidia, the leading maker of the powerful data center GPUs used to run generative AI applications, is now worth more than 30 times that of Intel.

Nvidia has been more valuable than Intel since 2020, and their market caps have moved in opposite directions since then. Nvidia’s profits have soared thanks to the AI ​​boom sparked by ChatGPT, while Intel has missed several opportunities and announced a massive restructuring in August. Nvidia rose 2.9% in after-hours trading on news of its pending DJIA inclusion, while Intel fell 1.8%.

The AI ​​chip giant now joins three of its “Magnificent Seven” peers – Apple, Microsoftand Amazon — among the 30 Dow Jones components.

Which Magnificent 7 company will be the next to join the Dow?

The three Magnificent Seven companies left that are not in the Dow and Alphabet (GOOG 3.06%) (GOOGL 3.20%), Teslaand Meta platforms.

Of those companies, Alphabet is the largest, with a market capitalization of $2.1 trillion, and probably the most diversified, with businesses ranging from Google Search to YouTube to cloud infrastructure to its autonomous vehicle subsidiary Waymo.

For Alphabet to join the Dow, it would have to replace another company, but there is no clear parallel swap for Alphabet, as there was with Nvidia and Intel.

There is another old tech company in the Dow that arguably deserves to be replaced by a current leader, and that is Ciscowhich is best known for its networking equipment. It is one of the lowest Dow Jones stocks with a share price of $55 and it has a market capitalization of $221.2 billion. Another option would be IBManother legacy technology company that has been slimmed down over the years after spinning off its IT services unit (now called Kyndryl) to focus on the cloud and AI services. IBM currently trades at a share price of $208 and has a market capitalization of $193 billion.

Will Alphabet join the Dow?

There’s no set schedule when it comes to making changes to the makeup of the Dow Jones Industrial Average, but these removals and inclusions don’t happen often. Changes are made at the discretion of the index’s managers, whose goal is to keep it populated with financially important companies that have excellent reputations.

Cisco and IBM both still have larger market caps than Intel, so there may be no rush to remove either of them from the index in favor of Alphabet. However, Alphabet is now a well-established market leader, and it has been one of the most valuable stocks on the market for at least a decade.

The Google parent should eventually gain access to the Dow Jones Industrial Average, although that could take years.