Alphabet is set to join the Dow Jones Industrial Average on Monday, but its stock is climbing for reasons beyond this change. Shares rose 1.2% in premarket trading as the Magnificent Seven group rebounded. A separate report showed that demand for Google’s AI computing power is so high that it has had to limit usage for Meta Platforms and other clients. This article explains what this demand means and why joining the Dow is unlikely to give the stock a significant boost.
The Financial Times reported that Google has limited Meta’s access to its Gemini AI models because of capacity issues, and some smaller clients are affected too. Google and Meta did not respond right away to requests for comment. At first glance, restricting a paying customer might seem negative. In reality, it shows strong demand. Google’s AI systems are running close to full capacity, so more people want its models than it can currently provide. This situation supports Alphabet’s decision to invest heavily and backs up analysts’ expectations for Google Cloud’s revenue growth.
Alphabet’s cloud computing division saw revenue grow by 63% in the first quarter, the fastest rate since the company started sharing this number in 2019. TD Cowen expects cloud revenue to grow at a 37% annual rate, increasing from about $100 billion this year to $480 billion by 2031.
Joining the Dow will have little direct effect on Alphabet’s stock. The Dow is price-weighted, not based on market value, so few funds copy its makeup. This means there is no major forced buying from passive managers, unlike what happens with an S&P 500 addition. Starting Monday, Alphabet will take Verizon Communications’ place in the 30-stock index.
The Magnificent Seven group is bouncing back on Monday after a tough June. The Roundhill Magnificent Seven ETF has dropped 13% this month, heading for its worst month since it started in April 2023. Microsoft and Meta were both up about 2% in premarket trading, while Nvidia, Amazon, and Tesla each gained around 1%. Apple’s stock was mostly unchanged.
