After its stock split, is Nvidia about to join the Dow?
Nvidia’s stock split this week has made the stock more palatable for ordinary investors, but is the real reason a desire to be included in the legendary Dow Jones Industrial Average?
After announcing a 10-for-1 stock split, tech giant Nvidia Corporation has fuelled speculation that it could soon be added to the prestigious Dow Jones Industrial Average (Dow). The split, which takes effect on June 10th, will bring Nvidia's share price closer to the $100 range, making it a more feasible candidate for inclusion in the price-weighted index.
Why Nvidia is a strong contender
The Dow Jones Industrial Average methodology states that a company must meet specific criteria to be considered for inclusion, such as having an excellent reputation, demonstrating sustained growth, and being of interest to a large number of investors. Nvidia, as the leader in artificial intelligence (AI) and the third-largest company by market capitalisation, ticks all these boxes.
Why include Nvidia?
There are five reasons why Nvidia should replace Intel in the Dow:
- Nvidia's market capitalization of $2.7 trillion dwarfs Intel's $128 billion, with Intel currently holding the lowest weighting in the index.
- Nvidia's dominance in the rapidly growing AI sector, powering applications like ChatGPT, positions it as a future technology leader.
- Nvidia's projected revenue growth of 83% this year far outpaces Intel's expected 5% decline, highlighting its strong growth trajectory.
- The addition of Nvidia would signal the Dow's recognition of AI's transformative impact across industries.
- Nvidia's inclusion would align the index with tech giants Microsoft and Apple, which have already been included in the index.
Methodology and potential timeline
While the S&P Dow Jones Indices firm declined to comment on potential changes, the Dow's methodology allows for additions "at any time" based on "corporate actions and market developments." This leaves the door open for Nvidia's inclusion, but the timing is up to the Dow’s committee.
Nvidia stock price – technical analysis
Nvidia’s stock continues to deliver for investors. It hit a new record high last week, and already investors have been keen to buy into weakness.
After a 22% decline in March and April, the stock price reaffirmed the uptrend with a rally from its April low around the (adjusted) price of $75. Since then it has gained 60%, moving to a new record higher high.
The price currently finds itself 27% above the 50-day simple moving average (SMA), though momentum may yet carry it higher. There is little sign of any pullback developing yet, though in the first instance a close below $115 might signal some short-term weakness is at hand.
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