Investors are expecting the Dow Jones Industrial Average to get a boost from the inclusion of the biggest artificial intelligence beneficiary of the last year. But history shows they may have to wait. The 30-stock Dow has underperformed this year and last after failing to capitalize on the artificial intelligence boom that helped bolster the comparatively tech-heavy S & P 500 and Nasdaq Composite. The Dow has advanced just 11% this year, after rising 13.7% in 2023. By comparison, the S & P 500 has surged 20% in 2024, after climbing 24% last year. So it’s natural that calls for the Dow to modernize a bit grew louder and the S & P Dow Jones index committee finally took action last week, with Nvidia’s recent stock split giving them the opportunity to do so by making it a more palatable for the price-weighted average. NVDA 1D mountain Nvidia “When we kind of think about where the world is headed to over the next decade or so, it’s one where semiconductors are going to play a much bigger theme out there, across different vectors of the market,” said CFRA Research’s Angelo Zino. Investors’ enthusiasm around the addition boosted Nvidia Monday, even as the Dow struggled . Nvidia doesn’t actually join the average until Friday before the bell so it couldn’t help. New additions underperform History shows that stocks that leave the Dow have historically outperformed incoming members, according to past data from Ned Davis Research , as the new addition typically comes after a long run of outperformance and the exiled stock becomes a kind-of contrarian value buy. Since 1972, outgoing members have averaged a 12-month gain of nearly 17.5%, while new members have averaged a 10% gain in their first year. However, CFRA’s Zino is skeptical the same pattern will hold true as the Dow exchanges one of the market’s worst-performing chipmakers for one of its best. The analyst cited Nvidia’s strong fundamentals, as well as “absolutely enormous” growth cycle tied to its Blackwell GPUs that has the analyst bullish on the company’s future prospects. Meanwhile, Intel will have to contend with losing further share in its core markets, he said. And the pattern didn’t hold when Amazon joined earlier in the year. For example, Amazon, which replaced Walgreens Boots Alliance in February, gained 13% since the change, as of Friday’s close. On the other hand, shares of Walgreens Boots Alliance have plummeted 56%. Nvidia shares have gained 179% this year, and last advanced 1.8% in midday trading. Meanwhile, Intel shares have tumbled more than 55% in 2024; on Monday, it was last off by another 3.5%. “It makes all the sense in the world to kind of replace a name like Intel, which kind of really missed a number of major themes here, and trends across the tech space over the last two decades for that matter, and kind of replacing it with a name that has had that AI inflection that should be a big winner here over the next couple of years,” Zino said. “[The Dow] couldn’t yield better performance,” he added. Nvidia will be the fourth of the Magnificent Seven companies to join the benchmark.
