Amazon and Alphabet could give the Dow a 21st century facelift

Amazon and Alphabet could give the Dow a 21st century facelift

Amazon and Google owner Alphabet are two of the most dominant companies on Earth. Each is worth more than $1 trillion and is a leader in multiple industries. But neither stock is a member of Wall Street’s most exclusive club: the Dow Jones Industrial Average. That may soon change.

Amazon (AMZN) announced late Wednesday that it plans to do a 20-for-1 stock split at the end of May. While that won’t change the value of the company, it means that one share, which now costs around $2,925, would trade for a little less than $150 based on current prices.

Alphabet announced its own 20-for-1 stock split last month. The split takes effect in July. The price of Alphabet’s most widely available class A shares, trading under the ticker symbol of GOOGL (GOOGL), currently cost about $2,600. So if the split happened today, the price would drop to around $130. Why does this matter for the Dow? The group of 30 venerable blue chip stocks is a price-weighted average and not a market cap weighted index like the S&P 500.

That means that if companies with quadruple digit stock prices were in the Dow, their moves would drastically skew the point value of the index every day. The company that currently has the biggest weighting in the Dow is UnitedHealth (UNH), by virtue of its $480 a share stock price.
One could argue that the only reason Alphabet and Amazon aren’t already in the Dow is because of their prohibitively high stock prices. After all, they are the third and fourth most valuable companies in the S&P 500, trailing only Apple and Microsoft.

Michael Grieco