Wednesday 24 June 2026 2:14 pm
Alphabet's entry is the fifth change to the Dow's composition this decade
Alphabet will replace Verizon Communications in the Dow Jones Industrial Average next week, S&P Dow Jones Indices announced on Wednesday, in the blue-chip index’s first structural change since Nvidia displaced Intel in 2024.The Google parent’s Class A shares will join other members of the so-called Magnificent Seven including Nvidia, Amazon, Apple and Microsoft in the 30-stock index.S&P Dow Jones Indices said the addition would broaden the Dow’s exposure to AI and digital advertising.Alphabet carries a market capitalisation of $4.2 trillion (£3.19 trillion), making it the third most valuable publicly listed company in the world.Verizon, however, accounted for barely half a percentage point of the price-weighted index, its shares trading on less than ten times forward earnings and 2.5 times sales, against Alphabet’s 25 times earnings and more than eight times forward sales.“This valuation multiple disparity is clear evidence of what investors think of the two companies’ relative growth prospects,” AJ Bell analyst Russ Mould told City AM.The reshuffle is only the fifth change to the Dow’s composition this decade.“The replacement of telecom giant Verizon, typically a defensive name, is as much a statement about the direction of the US economy towards higher-growth technology activities as it is about Alphabet’s momentum,” Derren Nathan, head equity analyst at Hargreaves Lansdown, told City AM. Nathan cited Alphabet’s reach across search, Youtube, its Gemini chatbot, Google Cloud, Waymo autonomous taxis and Wing delivery drones as having “earned itself a place alongside iconic American companies such as Disney, McDonald’s, Boeing and Nike.”The announcement follows Alphabet shares slipping five per cent on Monday, their steepest single-day decline in over a year, after Noam Shazeer, its vice president of engineering, announced his departure for rival OpenAI.The shares have nevertheless gained more than ten per cent in 2026 and are on course for a fourth consecutive positive year.”Alphabet and Verizon have been approached for comment.History offers a note of caution for this kind of reshuffle, however. When Nvidia replaced Intel back in November 2024, Nvidia’s shares rose 35 per cent in the months that followed.But, Intel’s nearly quadrupled as a restructuing programme under chief executive Lip-Bu Tan gathered pace.“Hopes were already high at one stock, and all but extinguished at the other,” Mould said. “The lofty valuation of Nvidia means it is finding it harder to surprise on the upside, and the lowly valuation of Intel means it is much easier to do so, at least for now.”That same dynamic played out in 2020, when Salesforce, Amgen and Honeywell replaced Exxonmobil, Pfizer and Raytheon in a single reshuffle.At the time, the changes were read as a verdict on the declining relevance of energy and defence stocks.Since then, Raytheon’s shares have seen a 50 per cent uptick, and Exxonmobil 15 per cent. Salesforce shares have nearly halved over the same period.“Index membership and glitzy narrative do not necessarily make for share price performance,” Mould said, “especially if the shares have already done well, trade on lofty valuation multiples and come with equally lofty expectations for future growth.”Alphabet has been among the most aggressive spenders on AI infrastructure, raising $141bn in debt and equity since October to fund data centre expansion.According to Marketwatch, Alphabet deploys more data centres and borrows to finance them. “It is becoming more of an industrial company – maybe this is the 21st-century industrial economy,” the market analytics firm said.Honeywell will remain in the index following the completion of its aerospace spin-off, rebranded as Honeywell Technologies.
