A company's inclusion in the Dow Jones Industrial Average (DJIA) is a milestone for US-listed companies. Wall Street's oldest index comprises just 30 stocks, and changes are relatively rare (7 in the last 15 years). Inclusions and exclusions are subject to a number of criteria, not all of which are explicitly defined, as selection is partly subjective (no numerical criteria, apart from share price, as we shall see later) and carried out by a special committee of S&P Dow Jones Indices. Here are a few criteria:

  • The company has an "excellent reputation".
  • Sustained growth
  • Attractive to a large number of investors
  • Maintains "adequate" sector representation
  • It must be incorporated and headquartered in the United States, and generate "a significant portion" of its revenues there.
  • It does not belong to the Transportation (GICS code 2030) or Utilities (GICS code 55) sectors.
  • The most expensive stock in the index must not be more than ten times more expensive than the cheapest.

Nvidia is a candidate for inclusion in the index, given its growth over the past two decades and its position as one of the fastest-growing companies in the United States. Based on current share prices (USD 1141), the operation would not have been possible under the last of the aforementioned laws. But Nvidia has announced its intention to divide the value of its stock by ten, to make it more accessible, more liquid and... perhaps to set its sights on the Dow Jones? The index is in fact weighted by price - an incongruity in modern times - and not by capitalization. S&P can't afford to include stocks whose price is too high, at the risk of giving them too much influence in the index. On the basis of the current price of USD 1141, a tenfold split would bring the price down to around USD 114, which would be much more acceptable for inclusion in the Dow Jones. Currently, the Dow's most influential stock is UnitedHealth (USD 504), ahead of The Goldman Sachs Group (USD 460) and Microsoft (USD 430).

The market had speculated that Amazon would enter the Dow in 2022, after a "split". The stock was finally added earlier this year, at the expense of Walgreens Boots (which had ousted General Electric in 2018). In the technology segment, Microsoft and Intel had joined the index in 1999, becoming the first Nasdaq-listed stocks to be included in the Dow. Apple had to wait until 2015 (replacing AT&T).

Many positive arguments

Nvidia has the potential to join the Dow Jones, but the final decision is partly discretionary, as we've seen. Changes are not that frequent in the old index. Even so, the forecasts make Intel a risky proposition. The company has not been on a roll for some time now, and is at the very bottom of the rankings in terms of share price (USD 31). What's more, it seems easier to replace a technology with a technology for the committee: it avoids having to rack your brains over sector representativeness!

The stock ticks quite a few boxes in favor of inclusion. But perhaps the committee will want to wait for the dust to settle after the stock's stratospheric rise (it can decide when it likes). On the other hand, Nvidia's entry into the Dow would enable the old index to better replicate the strength of the technology sector, since Intel hasn't been the best horse to bet on in this area in recent years. Several market insiders punctuated their comments on the subject with this mantra, which pretty much sums up the general feeling: it's not a question of if Nvidia will enter the Dow, but when.