The Dow Jones Industrial Average is expected to get a boost after the addition of Nvidia, the biggest artificial intelligence beneficiary of the past year. However, history suggests that investors may have to wait, as the 30-stock index has underperformed compared to its tech-heavy peers.
In 2023, the S&P 500 and Nasdaq Composite surged 13.7% and 24%, respectively, while the Dow advanced just 11%. This year, the Dow has trailed behind its competitors, but the addition of Nvidia has sparked renewed enthusiasm.
Nvidia’s recent stock split made it easier for the price-weighted average to incorporate the chipmaker. CFRA Research’s Angelo Zino believes that semiconductors will play a significant role in the market over the next decade. He notes that Nvidia’s strong fundamentals and “absolutely enormous” growth cycle tied to its Blackwell GPUs make him bullish on the company’s future prospects.
However, history suggests that new additions to the Dow have historically underperformed. 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. The pattern didn’t hold when Amazon joined earlier this year, with shares gaining 13% but Walgreens Boots Alliance plummeting 56%.
Nvidia’s addition to the Dow is seen as an opportunity to replace Intel, which has struggled in recent years. With Nvidia set to become the fourth “Magnificent Seven” company to join the benchmark, investors are optimistic about the boost it will bring to the index.
Source: https://www.cnbc.com/2024/11/04/what-nvidias-dow-inclusion-means-for-the-chipmaker-according-to-history.html