Did The Dow Jones Index Committee Top-Tick the AI Trade?

The S&P Dow Jones Index Committee announced on Friday that it was dropping Intel and Dow Inc. (the chemical company) from the Dow Jones Industrial Average (DJIA) and adding Nvidia and Sherwin-Williams. The changes will take effect prior to the start of trading on November 8th.

Nvidia shares have boomed this year rising over 180% while Intel shares have cratered over 50%. On the surface, it sounds like pretty poor timing, which isn’t that uncommon for the Dow index committee.

Does the addition of Nvidia to the Dow signal a top to the AI trade?

Adding Nvidia after such a monster run in the stock feels eerily similar to the addition of Intel and Microsoft to the Dow just before the top of the dotcom bubble. Those changes were made on November 1, 1999, about five months before the market top. Over the ensuing three years, Intel underperformed the DJIA by 35 percentage points. But as the chart below clearly illustrates, the upshot for investors who still own Nvidia shares is the top may not be here just yet. Intel went on to nearly double after it was added to the Dow average. Of course, those gains were short-lived as Intel shares cratered by over 80% from their high during the dotcom bust.

The addition of Nvidia to the Dow may not spell the absolute top for the AI trade, but it likely means the AI theme is already into late innings.