It had to happen at some point.

On Friday after trading closes S&P Global announced that Nvidia (NVDA 2.84%) I would finally join in Dow Jones Industrial Average (^DJI 1.02%). The AI ​​chip juggernaut has been the most valuable company not included in the blue chip index for most of this year, and with its valuation topping $3 trillion, it is now a challenge Apple for the title of the most valuable company in the world.

As seemed likely after Nvidia's stock split, Nvidia will replace Intel (INTC 3.55%) in the Dow. S&P Global, which manages the Dow Jones, also said the same Sherwin Williams will replace the chemical giant Dow on the vaunted index. S&P Global said the changes were “initiated to ensure more representative exposure to the semiconductor industry/materials sector.”

The Dow Jones manager also noted that the index is price-weighted, so lower-priced stocks have less influence on the index, and noted that Dow is the smallest company in the index by market capitalization.

Both Nvidia and Sherwin-Williams have stock prices significantly higher than Intel and Dow respectively, so this move will increase the index's exposure to both the semiconductor and materials sectors. The changes will be implemented before trading opens on November 8th.

Image source: Getty Images.

Nvidia is in, Intel is out

The replacement of Intel by Nvidia in the Dow has been a long time coming. Intel was the only pure-play semiconductor stock in the Dow, but the industry has become increasingly important in the age of artificial intelligence, and nearly all chip stocks have soared — with the notable exception of Intel.

Nvidia, the leading maker of high-performance data center GPUs used to run generative AI applications, is now worth more than 30 times as much as Intel.

Nvidia has been more valuable than Intel since 2020 and their market caps have moved in opposite directions since then. Nvidia's profits have soared thanks to the AI ​​boom sparked by ChatGPT, while Intel missed several opportunities and announced a massive restructuring in August. Nvidia rose 2.9% in after-hours trading on news of its impending inclusion in the DJIA, while Intel fell 1.8%.

The AI ​​chip giant now joins three of its “Magnificent Seven” competitors: Apple, MicrosoftAnd Amazon – among the 30 Dow Jones components.

Which Magnificent 7 company will join the Dow next?

The three “Magnificent Seven” companies remain that are not represented in the Dow alphabet (GOOG 0.43%) (GOOGL 0.29%), TeslaAnd Metaplatforms.

Of these companies, Alphabet is the largest, with a market cap of $2.1 trillion, and probably the most diversified, with businesses ranging from Google search to YouTube to cloud infrastructure and its autonomous vehicle subsidiary Waymo.

For Alphabet to be included in the Dow, it would have to replace another company, but there is no clear parallel swap for Alphabet, as was the case with Nvidia and Intel.

There's another legacy tech company in the Dow that arguably deserves to be replaced by a current leader, and this is it Ciscowhich is best known for its network equipment. With a share price of $55, it is one of the lowest priced Dow Jones stocks and has a market capitalization of $221.2 billion. A second possibility would be IBManother long-established technology company that over the years after spinning off its IT services division (now “ Kyndryl) to focus on cloud and AI services. IBM is currently trading at a share price of $208 and has a market cap of $193 billion.

Will Alphabet join the Dow?

There is no set timeline when it comes to making changes to the composition of the Dow Jones Industrial Average, but such removals and inclusions do not occur often. Changes are made at the discretion of the index managers, whose aim is to continue to populate the index with economically important companies with excellent reputations.

Cisco and IBM still have larger market caps than Intel, so there may not be the same urgency to remove one of them from the index in favor of Alphabet. However, Alphabet is now an established market leader and has been one of the most valuable stocks on the market for at least a decade.

Google's parent company should eventually be included in the Dow Jones Industrial Average, although it could take years for that to happen.