Alphabet Joins Dow Jones After 300% Surge Sparks Market Outlook

Key Points

• Alphabet was recently added to the Dow Jones Industrial Average, a price-weighted index comprising 30 blue chip stocks.

• Historically, stocks have underperformed the S&P 500 over the 12-month period following their inclusion in the Dow Jones.

• Alphabet’s revenue growth has accelerated in five straight quarters amid strong demand for custom AI chips and Gemini models.

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) shares have risen more than 300% since the artificial intelligence (AI) boom began in earnest in January 2023. Early concerns that AI might erode Alphabet’s search leadership have been mitigated as the company has effectively incorporated AI into its advertising and cloud offerings.

On June 29, Alphabet was admitted to the Dow Jones Industrial Average (DJINDICES: ^DJI), replacing Verizon Communications. Its inclusion marks only the 16th addition to the index in the past 15 years, continuing a historically notable pattern.

Image source: Getty Images.

History says Alphabet will underperform the S&P 500 in the next year

The Dow Jones Industrial Average tracks 30 blue‑chip stocks, all constituents of the S&P 500 (SNPINDEX: ^GSPC). Unlike the S&P 500, which weights components by market capitalization, the Dow Jones weights them by share price, giving greater influence to higher‑priced stocks.

S&P Global, the curator of the Dow Jones, outlines the inclusion criteria: a stock is typically added only if the company maintains an excellent reputation, demonstrates sustained growth, and attracts broad investor interest.

Over the past 15 years, 16 companies have been added to the Dow Jones. On average, these stocks rose 7% in the year after inclusion, whereas the S&P 500 delivered an average gain of 20% during the same periods. Thus, historically, Dow Jones additions have underperformed the S&P 500 over the subsequent 12 months.

While past performance does not guarantee future results, these historical trends suggest a modest outlook. Alphabet closed at $354 per share on June 29, the day it entered the Dow Jones. If history repeats, the share price could reach $378 by July 2027 — a 7% increase from that level, representing roughly 5% upside from the current $360 price.

In contrast, inclusion in broader indexes such as the S&P 500 or Nasdaq Composite often triggers a sharper price jump, as many funds must purchase the added stocks. The Dow Jones attracts fewer such funds, so price appreciation after inclusion tends to be more modest.

Alphabet’s actual performance over the coming year will ultimately depend on its financial results and market sentiment.

Alphabet’s revenue growth has accelerated in five straight quarters

Alphabet reported first‑quarter results showing a 22% year‑over‑year revenue increase to $110 billion — the fifth consecutive quarter of accelerating growth. Advertising revenue rose 15%, while cloud services surged 64%. GAAP earnings jumped 82%, driven in part by unrealized gains from Alphabet’s stake in Space Exploration Technologies.

Investors are optimistic that Alphabet can sustain this momentum. Grand View Research forecasts 14% annual growth in digital advertising through 2030 and 16% growth in cloud spending over the same period. As the world’s largest digital advertising firm and the third‑largest cloud provider, Alphabet is well positioned to capture these industry tailwinds.

Alphabet is poised to gain market share in cloud computing, bolstered by its leadership in custom AI accelerators and the popularity of its Gemini models. The company has begun offering its Tensor Processing Units (TPUs) to external customers for use in their own data centers. Gemini now ranks as the second most widely used AI chatbot, trailing only OpenAI’s ChatGPT.

Wall Street projects Alphabet’s earnings to grow at 15% annually over the next three years, rendering its current valuation of 27 times earnings relatively reasonable. While more attractive entry points may emerge later, patient investors can consider establishing a modest position in Alphabet stock today.

Should you buy stock in Alphabet right now?

Investors should evaluate Alphabet’s growth trajectory, valuation metrics, and broader market dynamics when determining an appropriate entry strategy.

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