Nvidia's Stock Split: Will It Replace Intel in the Dow Jones Industrial Average?
What are the criteria set by S&P Global for a company's inclusion in the Dow Jones Industrial Average?
S&P Global, which manages the Dow Jones Industrial Average, does not have strict criteria for including a company in the index. However, there are some general guidelines that are considered. A company should be a blue-chip company with an excellent reputation, sustained growth, wide investor interest, and contribute to sector balance. Additionally, the company's share price should be suitable for the index, as the Dow Jones is a price-weighted index, meaning that the degree to which each stock impacts the index is based on its share price3.
Based on recent performance, why might Intel be considered for removal from the Dow Jones Industrial Average?
Based on recent performance, Intel might be considered for removal from the Dow Jones Industrial Average for a few reasons. First, Intel has been a laggard in the semiconductor industry, with its stock gaining only 11% over the last decade and trailing the Dow Jones by a significant margin. Additionally, Intel hasn't posted a quarter with double-digit revenue growth in nearly four years, even as peers like Nvidia report much faster growth. Furthermore, Intel's current share price makes it the third-least-influential stock in the Dow, with a weighting of barely 1%. This, combined with its long-term underperformance, suggests that there may be better representatives from the semiconductor industry to include in the index.
What were the primary reasons for the positive investor reaction to Nvidia's announced 10-for-1 stock split?
The primary reasons for the positive investor reaction to Nvidia's announced 10-for-1 stock split are as follows:
- Sign of Confidence: Investors perceive stock splits as a positive sign from management, indicating that they expect the share price to continue moving up.
- Reset for the Share Price: A stock split acts as a reset for the share price, signaling that it has reached a milestone and is ready to run up again.
- Accessibility to Retail Investors: Stock splits make individual shares cheaper, leaving them more accessible to retail investors, which can help boost demand.
- Potential Outperformance: There is evidence that stock splits are correlated with outperformance over the next year, possibly due to the momentum in the business that led to the stock split in the first place and enthusiasm from investors resulting from the split.
- Possibility of Replacing Intel in the Dow Jones Industrial Average: Some investors believe that Nvidia could replace Intel in the Dow Jones Industrial Average, fully establishing it as a blue-chip tech stock. The stock split makes Nvidia's share price more suitable for inclusion in the price-weighted Dow Jones index.