With the recent addition of Amazon to the Dow Jones Industrial Average Index ($DOWI), the question arises: should Nvidia (NASDAQ:NVDA) be the next contender for inclusion? Let’s delve into this matter.
Understanding the Dow 30
The Dow Jones Industrial Average Index, established in 1896, is renowned as one of the oldest and most monitored stock market indices globally. Unlike most indices, it follows a price-weighted methodology, where the weight of its constituents is determined by their absolute stock prices.
Amazon’s Inclusion Rationale
S&P Dow Jones Indices replaced Walgreens Boots Alliance (NASDAQ:WBA) with Amazon (NASDAQ:AMZN) due to Walmart’s stock split, aiming to maintain the index’s retail sector exposure. This shift reflects the evolving landscape of the American economy, expanding consumer retail exposure within the DJIA.
Significance of Inclusion
Inclusion in benchmark indices like the Dow typically augurs well for stocks, attracting increased buying activity from passive funds and ETFs. It also serves as an endorsement of the company’s prospects, boosting investor confidence.
A Case for Nvidia’s Inclusion
Just as Tesla’s (NASDAQ:TSLA) inclusion in the S&P 500 validated the significance of electric vehicles, Nvidia epitomizes the AI revolution. Given AI’s prominence, Nvidia’s addition could mirror the evolving economy. Moreover, Nvidia’s weight in the index could help balance out existing constituents with relatively lower weights.
Nvidia’s Stock Split Potential
While Nvidia’s soaring stock price might hinder its inclusion, a stock split could remedy this. Similar to how Walmart’s split facilitated Amazon’s entry, a potential Nvidia split might align its weight more suitably within the index.
Conclusion
Considering Nvidia’s pivotal role in the AI landscape and the evolving nature of the economy, its inclusion in the Dow Jones seems justified. However, its lofty stock price necessitates strategic measures like a potential stock split to ensure a balanced representation within the index. Excluding Nvidia might risk obscuring the true picture of the market and economy.
In summary, Nvidia’s inclusion in the Dow Jones after Amazon presents a compelling proposition, symbolizing the dynamic shifts in technology and industry driving the modern economy.
Featured Image: Megapixl
