Prediction: Nvidia to replace Intel in Dow Jones index

It’s no secret that Intel (INTC -2.63%) he fought. The stock is down more than 60% year to date and has been the worst performer in the Dow Jones Industrial Average this year.

The company was once the world’s largest chipmaker, dominating the personal computer (PC) space. This helped it become one of the first two technology companies to join the renowned Dow Jones index, along with Microsoft in the late 1990s. However, the Wintel duo’s paths diverged greatly over the past decade.

Microsoft is a leader in artificial intelligence (AI) that has expanded into other businesses such as cloud computing, while Intel may begin to lose its grip on the PC market to the more advanced. Arm-tokens based on competitors.

In addition, Broadcom just took a big hit in its contract manufacturing business, launched in 2021 to help transform the company. After testing Intel’s newest manufacturing technology, the chipmaker concluded that it was not viable for high-volume production.

Nvidia is the logical replacement

Along with the Intel rumors, there are rumors that its days in the Dow Jones are numbered. The logical replacement would be Nvidia (NVDA -4.08%)which is now the world’s largest chip maker. As its revenue grew, the company became the symbol of the AI ​​boom.

Demand for its graphics processing units (GPUs) is currently insatiable as tech companies rush to build the data center infrastructure needed to power AI. Meanwhile, its chips have become the backbone of AI development, with the company believed to have more than 80 percent market share in the GPU space.

The company’s lead in the space comes not only from the technological strength of its chips, but also from the wide moat it has been able to create through its CUDA software platform. Developed long before AI became the next big thing, the software was the standard by which programmers learned to program GPUs, giving it the huge advantage it has today.

Meanwhile, in addition to CUDA, Nvidia has also built a series of microservices, libraries, tools and technologies called CUDA-X to help increase leadership in software. It has recently introduced a number of new libraries for a variety of purposes, from data processing to gene sequencing to vector databases.

While Nvidia is now synonymous with its GPUs used in data centers to build AI infrastructure, the company is not a one-trick pony. It also got a large networking platform when it acquired Mellanox in 2020. The company now has three networking platforms, and networking revenue doubled last year. While data center customers are its largest, the company also sells its products to a number of industries, including gaming, cryptocurrency mining, and automobiles, among others.

If Dow Jones wants to keep a semiconductor company in the index as a replacement for Intel, Nvidia is a strong choice. Unlike the S&P, which is a market cap-weighted index, the Dow is a price-weighted index, so Nvidia’s recent stock split could help it into the index, as before its price was a bit too high .

The Dow does not have strict rules for inclusion in the index. Its criteria are that “a stock is usually added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.” Also, the company must be based and incorporated in the U.S. Nvidia ticks all those boxes.

The Dow Committee, which consists of two representatives from The Wall Street Journal and three from S&P Globalultimately decides which companies are included and which are excluded. If the committee believes that AI will become an important part of the US economy, then Nvidia is the most logical choice to add.

Image source: Getty Images.

Is Nvidia stock a buy?

At the end of the day, if Nvidia is added to the Dow, it likely won’t change the stock’s long-term performance. However, it would be a great recognition and could give him a short-term boost.

NVDA PE Ratio data (Before 1y) by YCharts. PE ratio = price-earnings ratio. PEG ratio = price/earnings-growth ratio.

Either way, though, Nvidia looks like a solid long-term buy given its growth prospects and broad moat. Additionally, with the recent selloff in tech stocks, the stock is also cheap, trading at a forward price-to-earnings (P/E) ratio of about 27.4 and a price-to-earnings-growth (PEG) ratio of of approximately 0.75.