The stock market bounced back hard on Tuesday, and the Nasdaq Composite (NASDAQINDEX:^IXIC) did quite well. Up 1.5% as of 12:45 p.m. EDT today, the Nasdaq is actually up slightly on the week after a big roller coaster ride.
Many investors follow the Dow Jones Industrial Average more closely than the Nasdaq. Just six stocks out of 30 Dow components are listed on the Nasdaq, but they include some of the biggest tech companies on the planet. Nevertheless, one recent move could make it more likely that the Dow will replace one of its older Nasdaq stocks in favor of a newer and much larger rival. Below, we’ll look at Nvidia (NASDAQ:NVDA) to see if it’s ready to join the Dow and replace its competitor Intel (NASDAQ:INTC).
Making the case for Nvidia
Back when Intel joined the Dow in the late 1990s, it was the undisputed powerhouse of the chip industry. Its groundbreaking x86 microprocessor designs had become the standard for personal computers, and the tech boom had put PCs on the cutting edge of innovation.
Today, though, Intel has fallen behind, while Nvidia has moved forward with innovations of its own. The latter’s graphics processing units have become favorites not only among video gamers but also for those requiring their superior processing power for other applications, such as cryptocurrency mining. As a result, Nvidia’s market capitalization is now roughly twice that of Intel.
Nvidia never would have been able to be considered for the Dow when its stock price was above $800 per share. That’s because the Dow is a price-weighted index. Nvidia would instantly have had more than twice the influence of any other single stock in the average, making it a nonstarter as a potential addition to the Dow.
Now, though, Nvidia’s 4-for-1 stock split has finally taken effect. As a result, the stock’s price has moved to around $185. That’s a perfect amount for a new Dow component to take its place within the average.
Intel has no Dow influence anyway
Some will inevitably argue that Intel is still an extremely strong player in technology and doesn’t deserve to lose its place in the Dow. Intel has been able to sustain its track record in areas like data servers, and it still plays a big role in the PC industry.
Yet where it has fallen behind is in chips for mobile devices. Nvidia and others took the lead in that market, and Nvidia’s proposed acquisition of ARM Holdings would give it a big leg up not only on Intel but also the rest of the semiconductor industry.
Also, from a Dow standpoint, Intel has almost no influence over the average anyway. Its share price of $55 makes it the third-least-influential stock of the Dow 30, with a weighting of barely 1%. Nvidia would fall in the middle of the Dow pack, with roughly 3% to 3.5% weight.
The managers of the Dow have been busy, making changes to seven Dow components on five separate occasions in the past four years. It’s definitely possible that they’ll move again if they see Intel as having lost the semiconductor wars.
Joining the Dow would be a mark of distinction for Nvidia. But even if it doesn’t happen, investors can take heart in the fact that the GPU giant has already proved its superiority over Intel.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.