Quantifying how much Nvidia will influence Dow after it joins average

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Quantifying how much Nvidia will influence Dow after it joins average

Jensen Huang, co-founder and CEO of Nvidia, speaks during an event in Taipei, Taiwan, on June 2, 2024.

Annabelle Chih | Bloomberg | Getty Images

Nvidia is joining the storied Dow Jones Industrial Average. We learned on Friday the chipmaker would be added to the blue-chip index, ending months of speculation that began in May when Nvidia split its stock 10-to-1.

What kind of influence will Nvidia have on the 30-stock index when it joins before the bell this Friday?

Over the past two years, as artificial intelligence has become a dominant theme in boardrooms, Nvidia has emerged as one of the world’s largest companies. It has even surpassed

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in market capitalization and is vying with Apple to be the biggest stock in both the S&P 500 and the tech-heavy Nasdaq 100.

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Nvidia, 1 year

Keep in mind that the Dow is a price-weighted index, so a company’s market capitalization doesn’t matter in terms its effect on the index. Instead, share price determines how much a single stock can move the Dow on a daily basis. That is why UnitedHealth, at a closing price above $567 per share, often has the largest effect on the index. Goldman Sachs, with shares priced upward of $500, also frequently ranks among the top movers.

As of Friday’s close, Nvidia will be the 21st most-expensive stock in the Dow, while Intel, which is being removed from the index, is the least expensive at just more than $23.

A $1 gain in UnitedHealth would represent only a 0.18% change for the stock, compared to a significant 4.31% move for Intel. For Nvidia, a $1 change would be about 0.74%. Despite these percentage differences, the effect on the Dow ******** the same. A $1 move in any Dow stock translates to roughly 6.6 points on the index.

But it’s not just share price that matters. Volatility is also a key factor. By considering both share price and historical volatility, we can estimate each stock’s potential influence on the index. According to a CNBC analysis of FactSet data, Nvidia would rank as the eighth-largest influence on the Dow based on its share price and recent volatility.

Our analysis suggests UnitedHealth has the largest expected daily movement in the Dow, around $8.40 per day, due to its high share price. Coca-Cola, on the other hand, typically moves just $0.50 daily, reflecting its lower share price and steady performance. Nvidia’s expected daily move is around $4.40, placing it between Amgen and ********* Express, whose per-share prices are more than twice that of Nvidia. Nvidia’s volatility compensates for its relatively modest share price.

This all highlights some of the limitations of price-weighted indexes: Nvidia is a key player in today’s market, yet it likely wouldn’t have been added to the Dow before its stock split earlier this year. And while per-share price once held significance, fractional trading and ETFs have rendered that importance largely obsolete. Only in options trading, where contracts tend to be of 100 shares, does per-share price really matter anymore — there and in the Dow Industrials.

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