It had to happen sometime.

On Friday after the close of business, S&P Global has announced that Nvidia (NVDA 2.84%) would finally join the Dow Jones Industrial Average (^ DJI 1.02%). The AI ​​chip juggernaut has been the most valuable company left out of the blue-chip index for most of this year, and with a valuation hovering above $3 trillion, it’s now challenging Apple for the title of most valuable company in the world.

As seemed likely after the Nvidia stock split, Nvidia will take its place Intel (INTC 3.55%) in the Dow. S&P Global, which manages the Dow Jones, also said as much Sherwin Williams will replace the chemical giant Dow on the famous index. S&P Global said the changes were “initiated to ensure more representative exposure to the semiconductor and materials industries, respectively.”

The Dow Jones manager also noted that the index is price-weighted, so cheaper stocks have less impact 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 the open of trading on November 8.

Image source: Getty Images.

Nvidia is in and Intel is out

Nvidia’s replacement for Intel on the Dow Jones has been a long time coming. Intel has been the only pure semiconductor stock on the Dow Jones list, but the sector has become increasingly important in the AI ​​era and almost every chip stock has soared – with the notable exception of Intel.

Nvidia, the leading maker of the 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 cap has moved in opposite directions since then. Nvidia’s profits have skyrocketed thanks to the AI ​​boom sparked by ChatGPT, while Intel has missed several opportunities and announced a massive restructuring in August. Nvidia rose 2.9% in after-hours trading on news of DJIA’s impending inclusion, while Intel fell 1.8%.

The AI ​​chip giant now joins three of its ‘Magnificent Seven’ peers: Apple, MicrosoftAnd Amazon — among the 30 Dow Jones components.

Which company from the Magnificent 7 will join the Dow Jones next?

The three Magnificent Seven companies that are not in the Dow Jones remain 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 the Waymo autonomous vehicle subsidiary.

If Alphabet wants to join the Dow Jones, it would have to replace another company, but there is no clear parallel trade for Alphabet as there was before with Nvidia and Intel.

There’s another old tech company in the Dow Jones index that deserves to be replaced by a current leader, and that’s Ciscowhich is mainly known for its network equipment. It is one of the lowest priced Dow Jones stocks with a share price of $55 and a market capitalization of $221.2 billion. A second option would be IBManother old tech company that has slimmed down over the years after spinning off its IT services unit (now called Kyndryl) to focus on cloud and AI services. IBM currently trades at a share price of $208 and has a market capitalization of $193 billion.

Will Alphabet join the Dow Jones?

There is no set schedule when it comes to making changes to the composition of the Dow Jones Industrial Average, but these deletions and withdrawals are infrequent. Changes are made at the discretion of the index’s administrators, whose goal is to keep the index populated with economically important companies of excellent reputation.

Cisco and IBM both still have a larger market cap than Intel, so there may not be the same urgency to remove either 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 gain access to the Dow Jones Industrial Average, although it could take years before that happens.