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EXCLUSIVE: Nvidia Dow Jones Inclusion 'A Matter Of When' — Will It Replace Intel?

Published 24/05/2024, 17:55
© Reuters EXCLUSIVE: Nvidia Dow Jones Inclusion \'A Matter Of When\' — Will It Replace Intel?

Benzinga - by Chris Katje, Benzinga Staff Writer.

Semiconductor giant NVIDIA Corporation (NASDAQ:NVDA) reported first- quarter financial results that beat estimates from analysts.

The company also announced a 10-for-1 stock split, a move that could foreshadow a potential inclusion in one of the oldest and most followed stock indexes globally.

Split Not A Surprise: With Nvidia stock soaring in the last year and a history of stock splits, the announcement may not have been a surprise to many investors.

"No, I wasn't surprised," Freedom Capital Markets Chief Strategist Jay Woods told Benzinga.

Woods predicted a potential split in his weekly newsletter ahead of the first-quarter earnings report.

"Price wise shares are at that elevated level where they have announced a split in the past. Rumor wise, a stock split would make shares more attractive to be added to the Dow Jones Industrial Average," Woods wrote.

Woods said this marks the fifth time Nvidia has split shares since 2000, including the last split happening when shares were around $600.

The 10-for-1 split was larger than Woods expected with the other stock splits from the company being 4-for-1 (2021), 3-for-2 (2007), 2-for-1 (2006), 2-for-1 (2001) and 2-for-1 (2000).

Woods mentioned an interview between CNBC host Jim Cramer and Nvidia CEO Jensen Huang, in which Huang did not rule out the possibility of a stock split.

The global strategist said Nvidia won't admit that a stock split will make it more attractive for potential Dow Jones Industrial Average inclusion. He added that the split makes the stock more attractive for retail traders as owning a fractional share versus a full share is not the same.

Woods said that the stock split won't change the valuation of the company, but makes investors feel like they've won something.

"It's more psychological than anything else."

PreMarketPrep co-host Dennis Dick also predicted the stock split ahead of earnings.

"After the Cramer interview with Jensen Huang back in March, there was a high probability that $NVDA would announce a split. Earnings was a logical time to announce," Dick told Benzinga.

Related Link: NVIDIA ‘Marching Toward A Three-Trillion Market Cap’: 11 Analysts Size Up Q1 Results As AI Leader ‘Shows No Sign Of Slowing Down’

Dow Jones Inclusion Next?: Woods said Nvidia is now a prime candidate to be included in the Dow Jones Industrial Average, which is tracked by the SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA).

"When you're the face of the next wave of growth in technology, that being AI, that being the chipmaker, that to me says you should be represented in the Dow Jones Industrial Average," Woods told Benzinga.

Woods said Nvidia could replace Intel Corporation (NASDAQ:INTC), a chipmaker that is seen as old technology.

Nvidia is more relevant than Intel and used by the biggest companies, Woods added.

"The growth is there, the story is there, and now the price is there."

According to Woods, other candidates for replacement are Cisco Systems (NASDAQ:CSCO) and International Business Machines (NYSE:IBM). Adding that, "Intel coming out and Nvidia going in would make the most sense to me."

Woods noted that he predicted Walgreens Boots Alliance (NASDAQ:WBA) being kicked out of the Dow Jones Industrial Average in 2024. The stock was replaced by Amazon.com Inc (NASDAQ:AMZN) in the index earlier this year.

During the interview with Benzinga on Thursday, Woods said that all 30 Dow Jones Industrial Average stocks were down while Nvidia shares were up.

Woods explained that the most important factor is that the Dow Jones Industrial Average is a price-weighted index, making it too volatile to include a $1,000 stock. The average price of a Dow Jones Industrial Average stock is approximately $150.

The chief global strategist said Goldman Sachs (NYSE:GS) shares are trading at $450 and maybe they'll announce their first stock split. Microsoft Corporation (NASDAQ:MSFT) shares also trade for over $400 and could be a prime candidate to split to stay properly weighted in the index.

Woods mentioned that being included in the Dow Jones Index is not as significant as it once was, as the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ) are now more closely followed and more widely held in accounts.

"The Dow is more symbolic than anything else. I still think it's the most relevant index in the world."

Both Dick and Woods agreed that the most logical company for Nvidia to replace is Intel. "I believe NVDA will be put into DJIA and INTC out," Dick said.

He added that the 10-for-1 split makes Nvidia "a prime candidate" to be added to the Dow Jones Industrial Average.

"I'd expect this announcement sometime in the summer. I don't think it's a matter of ‘if' NVDA goes into the Dow, I think it's now a matter of ‘when.'"

NVDA Price Action:

  • Nvidia shares are up 238% in the last year and up 2,718% over the last five years.
  • Compare that to Intel stock, which is up 2% over the last year and down 32% over the last five years.
  • Disco shares are up 5% over the last year and down 14% over the last five years.
  • IBM shares are up 33% over the last year and up 35% over the last five years.
Read Next: Nancy Pelosi’s Nvidia Payday: Cashed In Big, But Missed Out By Selling Early

Watch Benzinga’s tour of the New York Stock Exchange with Jay Woods below.

Photo: Shutterstock

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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