Nvidia Replaces Intel on Dow Jones Industrial Average

In a significant shift that reflects the evolving dynamics of the semiconductor industry, Intel is set to be replaced by Nvidia on the Dow Jones Industrial Average (DJIA), bringing an end to Intel’s 25-year presence on the blue-chip index. This change, announced by S&P Dow Jones Indices on Friday, signals the impact of Nvidia’s rise in the booming artificial intelligence (AI) market and the challenges faced by Intel as it struggles to adapt to new industry demands. Alongside Nvidia, paint manufacturer Sherwin-Williams will join the DJIA, taking the place of Dow Inc., further reshaping the 30-member index.

 

Intel's removal from the DJIA marks a setback for the once-dominant chipmaker, which has seen its stock value fall dramatically this year, down 54% year-to-date. The decline has made Intel the worst-performing company on the DJIA, with the lowest share price on the price-weighted index. Following the announcement, Intel’s shares dropped 1.6% in extended trading, while Nvidia’s stock gained 2.2%, reflecting investors’ optimism about Nvidia's future as it joins the Dow.

 

Intel's downfall can be attributed to a series of strategic missteps that have allowed competitors, particularly Taiwan Semiconductor Manufacturing Company (TSMC), to surpass it in the global semiconductor market. Once a leader in chip manufacturing, Intel has lost its technological edge over TSMC, which has taken a commanding position in producing advanced chips. Intel also missed the opportunity to invest in generative AI early on, passing up a potential stake in ChatGPT-owner OpenAI, a decision that has since proven costly as AI demand surged.

 

For Nvidia, however, the story is quite different. The company has emerged as a leader in the AI chip market, with its graphics processing units (GPUs) now widely recognized as essential for AI data centers and machine learning applications. Once known primarily for its role in producing high-performance GPUs for gaming, Nvidia has successfully expanded its influence to become a key player in powering the global AI industry. This expansion has fueled a seven-fold increase in Nvidia’s stock over the past two years, propelling its valuation to a staggering $3.32 trillion. As of 2024, Nvidia stands as the world’s second-most valuable company, underscoring its importance in the technology sector.

 

In addition to Nvidia’s AI-driven success, the company's recent 10-for-1 stock split in June made its shares more accessible to retail investors. This move not only broadened Nvidia’s shareholder base but also helped pave the way for its inclusion in the DJIA, which traditionally favors companies with a higher price-per-share. Nvidia's entry into the DJIA is thus both a recognition of its technological achievements and a testament to its widespread appeal among investors, particularly those looking to capitalize on the AI revolution.

 

Intel’s removal from the DJIA could have broader implications for the company’s stock. Being excluded from the DJIA means Intel will no longer be part of the exchange-traded funds (ETFs) that track the index, which could potentially put additional downward pressure on its share price. Losing its place on the DJIA also presents a reputational setback for Intel, as it works to regain investor confidence amidst a challenging restructuring process.

 

“Losing the status of Dow Jones inclusion would be another reputational blow for Intel, as it grapples with a painful transformation and loss of confidence,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. She also noted that Intel’s exclusion from index-tracking ETFs could affect its stock performance, as fewer investors will now have exposure to Intel through these funds.

 

Once a Silicon Valley icon, Intel played a pioneering role in the chip industry, starting with memory chips before shifting to processors that powered the personal computer revolution. In the 1990s, Intel's "Intel Inside" campaign turned its chips into premium products and made the brand a household name. However, Intel’s struggles over the past decade have been evident in its financial performance. The company’s revenue in 2023 stood at $54 billion, nearly a third lower than in 2021 when Pat Gelsinger took over as CEO. Despite some recent positive projections for its PC and server businesses, Intel is expected to report its first annual net loss this year since 1986. Intel’s market value, now below $100 billion for the first time in three decades, pales in comparison to Nvidia’s massive valuation.

 

As Nvidia steps into Intel's former role on the DJIA, its influence in the semiconductor industry is expected to grow further. Nvidia’s dominance in the AI chip market has placed it at the forefront of the sector, with its chips often viewed as irreplaceable for high-performance computing and AI applications. Nvidia’s technology advantage, along with the high cost of replacing its AI chips, makes it difficult for rivals to compete in this space. Many experts consider Nvidia’s stock a barometer for the broader AI market, reflecting investor sentiment about the sector's long-term growth prospects.