As the Dow Jones Industrial Average Index ushered Amazon into its elite 30-stock lineup, ousting Walgreens Boots Alliance, the index made waves in the financial world. A significant move indeed, marking the first change since 2020, it begs the question – with a more contemporary facelift post-Amazon, should the venerable index consider adding AI powerhouse Nvidia to its illustrious roster? Let’s delve into this captivating prospect.
The Dow 30 Legacy
Since its inception in 1896, the Dow Jones Industrial Average Index has stood the test of time, standing as one of the most revered and closely tracked benchmarks worldwide. Notably, it differs from other indices like the S&P 500 by its price-weighted methodology, where constituent weights are determined by stock prices rather than market capitalization. Interestingly, not a single original Dow member remains, with General Electric’s departure in 2018 making way for Walgreens Boots Alliance, now supplanted by Amazon.
Highlighting the evolving landscape, the 2020 reshuffle saw Exxon Mobil, Pfizer, and Raytheon Technologies ousted in favor of Salesforce, Amgen, and Honeywell. Concurrently, the S&P 500’s audacious inclusion of Tesla fostered a milestone moment, marking its most significant market cap and weighting addition to date.
The Rationale Behind Amazon’s Inclusion
S&P Dow Jones Indices orchestrated Amazon’s entry to balance out Walmart’s diminished index weight post-stock split. By enhancing consumer retail exposure and broader business sector representation, Amazon’s induction aligns with the evolving market dynamics.
Moreover, the replacement of JetBlue Airways with Uber in the Dow Jones Transportation Average underscores the index’s quest to embrace burgeoning industries like ride-sharing. A parallel move transpired in the S&P 500 as Uber found a spot, mirroring the evolving transport and food delivery landscape.
The Case for Dow Jones Inclusion
Instituting an AI era akin to the electric car fervor of yesteryears, Nvidia stands tall as a $2 trillion AI juggernaut. A compelling argument echoes for Nvidia’s Dow induction, akin to Amazon and Uber’s premise. With Intel and Verizon commanding minimal Dow weightage, Nvidia’s entry embodies an economic metamorphosis reflection, akin to Amazon’s rationale.
Potential Barriers: Nvidia’s Stock Split Dilemma
The towering ascent of Nvidia’s stock value, bordering $800 per share, poses a conundrum for potential Dow inclusion. With a probable 13%+ weight in the price-weighted index – eclipsing stalwarts like UnitedHealth Group and Microsoft – a stock split lingers as a viable solution.
Paradoxically, Nvidia’s stock rally might be its Achilles’ heel. Similar to Walmart’s prelude enabling Amazon’s Dow debut, a forthcoming Nvidia stock split could pave the path for its index induction. Snubbing this AI leviathan from an index professing market breadth risks a skewed depiction of the economic canvas.