Google’s parent company Alphabet will join the Dow Jones Industrial Average (DJIA) when the US stock market opens on Monday, June 29. Alphabet will replace Verizon Communications in the 30-stock Dow index. This change means the Dow will have more exposure to technology and digital businesses.
Alphabet is the parent company of Google and YouTube, but it also has businesses in many other sectors. The company works in online advertising, cloud computing, artificial intelligence (AI), hardware, self-driving cars and healthcare technology. S&P Global said adding Alphabet will make the Dow a better representation of fast-growing parts of the US economy.
Why Alphabet is joining the Dow
S&P Global also said Alphabet has a much larger market value, a higher share price and a wider range of businesses than Verizon, making it a stronger Communication Services company for the Dow. Only Alphabet’s Class A shares will be added to the Dow, as stated by Kiplinger.
Alphabet’s Class C shares (ticker: GOOG) will not be included in the Dow. Verizon has been part of the Dow since 1984 but is now being removed from the index. Kiplinger noted that this continues a trend of older telecom companies leaving the Dow in favor of technology companies.
Also read: US stock market opens lower as S&P 500 holds steady, Nasdaq slips on OpenAI IPO delay
How the Dow index works
A similar change happened in 2015 when Apple replaced AT&T in the Dow. S&P Global said Verizon had very little influence on the Dow because its stock price is relatively low. The Dow is a price-weighted index, meaning companies with higher share prices have a bigger impact on the index than companies with lower-priced shares. Because Verizon’s stock price was low, it represented only about 0.5% of the Dow index.
Alphabet stock and Dow impact
Experts say joining the Dow is mostly a symbolic achievement rather than something that greatly changes Alphabet’s business. Kiplinger said the S&P 500 is the main benchmark that investors use to track the US stock market. About $12 trillion is invested in funds that track the S&P 500, making it far more important than the Dow for investors.
The Vanguard S&P 500 ETF (VOO), the world’s largest ETF, manages more than $1.7 trillion in assets. In comparison, the SPDR Dow Jones Industrial Average ETF (DIA), which tracks the Dow, manages only about $43 billion. Even though Alphabet is one of the world’s biggest companies, it will not dominate the Dow because the index is based on stock price, not market value.
At its current share price, Alphabet’s influence on the Dow will be roughly similar to Sherwin-Williams. After Alphabet joins, the Dow will include many of the biggest technology and communication companies. These companies include Apple, Amazon, Nvidia, Microsoft, Salesforce, Cisco Systems and IBM, along with Alphabet.
