Is Intel at risk of getting booted from the Dow?

Intel (INTC) shares plunging nearly 30% after the company announced a significant cost reduction plan and reported weaker than expected earnings.

The company was already the smallest component of the Dow Jones Industrial Average (^DJI), which is weighted by price. And Friday's move in the stock is raising the question whether the company could get removed from the blue-chip index.

But Barron's senior market analysis writer Paul La Monica suggests it might not happen right away. "It wouldn't surprise me if sometime in 2025 there is a decision to be made," he said about whether Intel gets removed.

And as for who could replace Intel, he went on to say "There are a lot of other chip companies that are better barometers of the semiconductor sector." Some of the names he mentioned were Qualcomm (QCOM), Broadcom (AVGO) and, of course, Nvidia (NVDA). La Monica saying recent stock splits from Nvidia and Broadcom could help their case.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Rachel Sherman.

Video Transcript

Intel shares plunging by 26% today on its earnings and cost cutting plans.

But because of its already low share price compared to other dow components, the decline did not have a major impact on the blue chips a mere 37 points.

And it's also raising the question of whether Intel should be included in the Dow at all, whether it should be kicked out joining us.

Now, Baron Senior Markets, an analysis writer Paul la Monica Paul, it's great to see you.

Um you know, this is, it was shocking to see that kind of a decline in a company, the size of Intel and one with the sort of history that Intel has.

So what does happen now in terms of its standing in the Dow?

Yeah, I think it's a bit of a wait and see Julie, we know that the people who make the dow who construct this average are very loath to make kind of knee jerk reaction changes.

So if you look at a company like Walgreens, for example, it had been struggling for a while or the Dow pulled the plug earlier this year, decided to replace it with Amazon So I don't think this is a type of scenario where Intel is going to be removed in the near future.

But it wouldn't surprise me if sometime, maybe in 2025 you know, there is a decision to be made and because it has by far the lowest stock price in the dow, it would seemingly be the stock that makes the most sense to get rid of, especially since there are a lot of other chip companies that are much more valuable right now.

And arguably better barometers of the semiconductor sector that they could put in instead to replace Intel.

Yes, that that's where I was going to go.

Paul Intel was removed.

Who do you think takes its place?

Yeah, it really depends.

I think if they wanted to do like a one for one switch and replace like with like so if you do that, NVIDIA is obviously the number one contender, a company that has about a $2.6 trillion market valuation was more than three trillion before this recent slide, obviously the leader in A I chips.

If A I did is what the internet was in the late nineties, then you could see for the foreseeable future, NVIDIA will be the major company in semiconductors, but there are other mega caps as well.

You've got Qualcomm, Broadcom and NVIDIA and Broadcom most very recently split their stocks.

So they're now in that sweet spot, they're not $1000.04 digit stocks.

That would wait, the do that would have a huge waiting on the Dow and we wouldn't be allowed in now, they could be because they split their stocks and then finally don't forget.

A MD.

It would be ironic if a MD, uh, replaced Intel on the Dow since a MD has been kind of, you know, trying to play, catch up to Intel for a long time.

But, uh, you've got to give credit to Doctor Lisa Su and what a MD that company has on over the past couple of years, been nothing short but a phenomenal.

And Paul, uh you know, we always like to have the debate about how relevant the Dow even still is because it is price, uh price weighted beca you know, just the com composition of it is a bit different here.

So, you know, how should people investors, retail investors in particular be thinking about the Dow versus the S and P as they're trying to figure out the health of the market?

Yeah, I do agree that at the end of the day, the Dow probably gets more attention than it deserves because it's historic.

It's been around a lot longer.

It has those eye popping numbers.

I mean, it's the one that trades 30,000, 40,000 hitting those milestones that are much higher than the S and P 500 the NASDAQ and it's 30 very well known companies to probably retail investors but also consumers who may not necessarily be investors.

They've heard of probably all 30 companies in the Dow.

So I do think that it still is important to this day and it would be very psychological to get rid of intel and replace them with another company.

But yes, you are correct.

That changes to the dow probably won't have that much impact on your investments because you don't have the tons of index funds and mutual funds where people are trying to beat the dow.

They're all benchmarked to the S and P for the most part.

Yeah.

Good point Paul.

Good to see you.

Thanks a lot.

Appreciate it.

Thank you.