'Time for Nvidia to replace Intel in the Dow'

 Intel is missing out on one of the biggest booms in semiconductors, while Nvidia embodies where the chip sector stands

After Intel Corp.'s disastrous news on Thursday, it is time for the once great semiconductor company to be replaced in the Dow Jones Industrial Average by the real leader in the sector, Nvidia Corp.

Intel (INTC), once the world's largest chip maker, fell a little further on Thursday, since it first lost its crown a few years ago. Intel shares tumbled almost 20% on the news that it needs to cut $10 billion in costs and is cutting 15% of its workforce and its quarterly dividend, starting in the fourth quarter. Chief Executive Pat Gelsinger even admitted that Intel has yet to "fully benefit from powerful trends like AI."

Earlier this year, when Amazon.com (AMZN) replaced Walgreens Boots Alliance Inc. (WBA) in the Dow Jones Industrial Average, the S&P Dow Jones Indices said at the time that the change was a reflection "on the evolving nature of the American economy."

In the current economic environment, Intel is missing out of the AI boom, especially in the data center, where Nvidia's (NVDA) graphics processor units (GPUs) are becoming an essential purchase to turn data centers into AI factories, as CEO Jensen Huang likes to describe them. Customers appear to be spending more on GPUs than on the core central processing units (CPUs) that Intel makes.

"I think the issue is that companies and cloud vendors are shifting capex expenditures to buy more GPUs and less CPUs," said Kevin Krewell, principal analyst at Tirias Research, in an email.

Intel's latest version of its graphics accelerator chip, Gaudi 3, is expected to be in volume production in the third quarter. Last quarter, it forecast $500 million in revenue from Gaudi for the second half, a paltry projection compared with Advanced Micro Devices Inc.'s (AMD) forecast for its AI accelerator chips, the MI300, which it raised to $4.5 billion in 2024. On Thursday, Gelsinger mentioned AI accelerators a few times but did not give an updated forecast. Intel is also developing AI PC chips, which are also in the early stages of launching later this year.

Earlier this year, Nvidia issued a 10-for-1 stock split, making the stock an even more appealing candidate for a Dow component, since the index is price-weighted. Its previous stratospheric price would have made it a no-go for inclusion in the average.

Intel's stock, on the other hand, is headed toward its worst day since September 2000, if its current pattern in after-hours trading continues Friday.

Nvidia has a solid position as the leading semiconductor giant in the U.S. right now, after years of focusing on the high-performance computing market. And while Intel has continued to manufacture its own chips, it is now also developing a costly business to manufacture chips for other companies, while Nvidia outsources its manufacturing.

The committee that makes the decisions for inclusions in the Dow is known to be extremely secretive. But with the Dow DJIA up 7.1% this year, while the S&P 500 SPX has outpaced it with growth that has doubled, its conceivable that the committee is looking at its components.

Intel's performance and talk of continued challenges should be a wakeup call for investors, and for the committee that makes the Dow's recommendations.

https://www.morningstar.com/news/marketwatch/20240801995/its-time-for-nvidia-to-replace-intel-in-the-dow