Key Points

• Dow Jones Industrial Average (DJIA): The most representative stock market index in the United States.
• Component stock adjustment: A landmark event reflecting changes in the industry landscape.
• Index calculation method: A simple weighted average algorithm of stock prices.
• Index economy: A business model formed by financial data services.
• Market representativeness: Thirty leading companies reflect the U.S. economy.

Abstract

The Dow Jones Industrial Average (DJIA) recently completed a major adjustment. Nvidia officially replaced Intel as a new component stock, marking a change in the landscape of the chip industry. This podcast deeply analyzes the operating mechanism of this 128 - year - old index: from the initial 12 industrial companies to the current 30 leading companies covering various industries, its unique price - weighted algorithm, although seemingly simple, has withstood the test of history. The S&P Dow Jones Indices maintains the authority of the index through a committee mechanism, and the index economy has formed a mature business model including data services and ETF licensing. Despite doubts such as a small sample size and imbalanced weights, the Dow is still one of the most important barometers in the global financial market.

Insights

Adjustments to index component stocks often serve as a thermometer for the rise and fall of industries. Intel's exit this time directly reflects the trend of AI chips replacing traditional computing architectures. The Dow's tradition of maintaining 30 component stocks faces the challenge of insufficient representativeness in the digital economy era, but its authoritative status can still significantly affect the market valuation of included companies. The integration wave of the index economy (such as the merger of S&P and Dow Jones) shows that financial data services are moving towards platformization, and suppliers with multi - dimensional indices will gain greater say. It is worth noting that the traditional price - weighted method may exacerbate the risk of index fluctuations in the current era when technology stock splits are prevalent.

Views

01 "Component stock adjustment criteria"

"The committee pays attention to whether the stock price exceeds 10 times that of the lowest - priced component stock and the industry representativeness." The adjustment decision is based on comprehensive factors such as stock price performance and industry balance. Intel was removed because its stock price was halved and was surpassed by Nvidia.

02 "Unique calculation method"

It uses a simple addition of the stock prices of 30 companies and then divides by a dynamically adjusted "Dow Jones Divisor". This price - weighted method gives high - priced stocks a greater impact on the index.

03 "Index economy business model"

It makes profits by licensing index usage rights, providing data services, and customizing research reports. Passive investment tools such as ETFs are its core customer groups.

The Financial Logic and Industry Changes Behind the Dow Jones Index Adjustment

On November 1st local time, the Dow Jones Industrial Average (DJIA) announced a major adjustment: Nvidia will replace Intel as a new component stock. This is not only a change in the status of two chip companies but also a microcosm of the changing global technology industry landscape. As the world's oldest stock index, every adjustment of the Dow affects the nerves of the capital market.

The Evolution Road of the Century - Old Index

Founded in 1896, the Dow was initially a simple tool designed by Charles Dow and Edward Jones to track 12 industrial companies. After three expansions, it has maintained a scale of 30 component stocks since 1928. "From American Tobacco and General Electric to today's Apple and Microsoft, the list of component stocks is a history of U.S. industrial changes," a financial historian commented. It is worth noting that although the name retains the word "industrial", the current component stocks cover diverse fields such as technology (Apple), consumer goods (Coca - Cola), and healthcare (UnitedHealth). This evolution reflects the adaptation of the index compiler, the S&P Dow Jones Indices, to changes in the economic structure. Currently, its management committee consists of 3 S&P representatives and 2 Wall Street Journal representatives, who decide on component stock adjustments through confidential meetings.

An Algorithm with Controversies and Opportunities

The Dow's unique price - weighted algorithm has always been controversial in the financial academic community:

1. Sample limitation: Can 30 companies represent the U.S. stock market with a market value of over $53 trillion?
2. Weight imbalance: High - priced stocks such as Boeing (stock price over $200) have far more influence than low - priced stocks such as Intel (stock price $26).
3. Adjustment lag: Tech giant Apple was included only after its stock split in 2014. However, supporters point out that this simple mechanism has withstood the tests of the Great Depression, the oil crisis, and the Internet bubble. "Just like the Fahrenheit thermometer, although not the most scientific, it has become the standard recognized by the market," an analyst from BlackRock Group metaphorically said.

The Invisible Index Economy

The deep - seated reason for the wide - spread attention caused by the component stock adjustment lies in the index economy worth billions of dollars behind it:

• ETF licensing fees: The assets under management of ETFs tracking the Dow exceed $30 billion.
• Data services: The real - time index data sold to quantitative funds costs over $50,000 per year.
• Brand premium: Selected companies generally receive an 8 - 15% short - term increase in stock prices. The merger of S&P and Dow Jones Indices in 2012 is a typical example of industry integration. Similarly, the London Stock Exchange built a complete financial data product line by acquiring the FTSE Russell Index. "In the future, the competition among index suppliers will be the competition of ecosystems," the CEO of S&P Dow Jones emphasized in the annual report.

A New Interpretation of Technological Hegemony

In this adjustment, Nvidia was included as an AI chip manufacturer, while Intel was removed after 24 years in the Dow, which has strong symbolic meaning:

• Nvidia has a market value of $1.2 trillion, five times that of Intel.
• Its H100 chip has become the "computing power currency" in the AI era.
• Traditional CPU manufacturers are accelerating their transformation towards AI. A Morgan Stanley report shows that on average, companies removed from the Dow in the past decade took five years to regain their market position. This poses a severe challenge to Intel, which is restructuring its business. As the digital economy develops in depth, this century - old index, the Dow, is facing new tests: Should it be expanded to better represent emerging industries? How to balance the excessive weight of technology stocks? The answers to these questions will determine whether it can continue to serve as the "barometer" of the global capital market. In any case, this component stock adjustment has clearly sent a signal - AI computing power is reshaping the power map of the technology industry.