Dow swaps Intel for Nvidia leaving no index free from wild AI volatility

On Friday, Nvidia will supplant Intel after 25 years as the semiconductor sector’s representative on the Dow Jones Industrial Average.

The decision, announced late last week by S&P Global, which oversees the DOW, was made to “ensure a more representative exposure to the semiconductors industry” and will go into effect before the market opens on Nov. 8.

Intel’s removal has been anticipated for some time. The Dow is a price-weighted index and Chipzilla’s stock has dropped by more than half since the start of the year. It has grappled with enormous losses, which totaled $16.6 billion in the third quarter alone. At the time of writing, Intel’s share price sits at $23.33.

Of all the chip companies that could fill Intel’s shoes, Nvidia was the obvious choice, despite the fact it doesn’t actually produce any of its own chips. The GPU giant has become a kingmaker amid the rise of generative AI with its accelerators and systems powering some of the largest and power hungry compute clusters in the world.

xAI’s Colossus, which we looked at last month, houses 100,000 of Nvidia’s venerable H100 GPUs. The extreme demand for its accelerators drove meteoric growth at the company, which has seen its market cap surge to more than $3 trillion dollars and its share price rise about 985 percent over the past two years.

According to Patrick Moorhead, chief analyst at Moor Insights and Strategy, the decision reflects a shift in value from general-purpose CPUs to GPUs and a preference for complete system designs.

“You need CPUs to light up the GPUs but from a metric value, GPUs are a larger portion of the growth,” he said. “Second, is the higher value of a solution (CPU+GPU+networking+even cables) from the individual piece parts. Total solutions are looked at as better for time-to-market and even reliability.”

Nvidia’s rapid rise from PC graphics peddler to datacenter Goliath has, however, put the firm at the mercy of the market. We’ve seen Nvidia’s market cap vacillated wildly over the past few months, sometimes rising and falling by hundreds of millions of dollars.

While it’s true its market cap has experienced some of the largest swings in the tech sector, Nvidia’s share price has also experienced relatively steady growth, albeit over a far shorter period of time than is typical of most companies listed on the Dow.

But, as if reflecting the market volatility of late itself, a company whose market cap swings up and down by nearly a billion dollars is at odds with an index often looked to for its relative stability and more practical view of the “real world” market.

“A decade or two ago it would have mattered as the Dow represented stability while the NASDAQ was looked at as riskier, but today no,” Moorhead explained, adding that he doesn’t expect Nvidia’s addition to result in major swings for the Dow.

In fact, Moorhead expects Nvidia’s inclusion on the Dow will mean very little for institutional investors, but will have a meaningful impact on retail investors ruled by emotion. ®