Better Buy Now: Nvidia or the Other 29 Stocks in the Dow Jones Industrial Average?

Nvidia (NASDAQ: NVDA) replaced Intel in the Dow Jones Industrial Average (DJINDICES: ^DJI) earlier this month, adding even more tech and semiconductor exposure to the historic index.

But with Nvidia up 910% since early last year, some investors may be wondering if the rally has gone too far and investing in other stocks may be a better option.

Here are some reasons why Nvidia could still be a growth stock worth buying now, but why investing in the Dow may be an even better buy for some investors.

Image source: Getty Images.

Reasons to buy Nvidia

Nvidia became the most valuable company in the world by transforming from a gaming and graphics visualization company to developing cutting-edge products that are powering advanced artificial intelligence (AI) applications. The simplest reason to buy Nvidia is that you believe it will remain a leader in AI, and that its customers will be able to monetize AI to grow profits and buy even more of Nvidia's products in the future.

Despite concerns that the AI megatrend is slowing down, Nvidia continues delivering impeccable sales and earnings growth. Nvidia's stock price is up 130.7% over the last year, but its earnings are up 112.6%, so its valuation is still somewhat reasonable. But analysts expect growth to cool, calling for $4.37 in fiscal 2026 earnings per share (EPS) compared to $2.95 in fiscal 2025 (Nvidia just reported third-quarter fiscal 2025 results). Still, that represents 48% earnings growth in a single year.

The most straightforward way for Nvidia to outperform the Dow over time is for its fundamentals to grow into its current valuation. This would mean continuing to grow its earnings at a rate that can support outsized stock gains already seen without further stretching the valuation. Here's an example of how that could play out.

Let's say that the cyclicality of the semiconductor industry and some margin erosion from the competition leads Nvidia to grow earnings by, on average, 25% over the next five years. If its stock price goes up by 20% on average during that time frame, it will likely outperform the Dow and the S&P 500 -- which has averaged around a 10% annual gain over the long term and an even better 13.5% over the last decade.It would also see its valuation drop from a 56.1 price-to-earnings (P/E) ratio to a 45.8 P/E ratio. If it kept up those same growth rates over 10 years, its P/E would be 37.3 after a decade.

There is nothing more powerful in the stock market than sustained earnings growth. Nvidia doesn't have to keep doubling its earnings every year in order to be a tremendous investment, but right now, it also can't afford to see its growth fall off by much, or the stock could begin to look overvalued.

Reasons to invest in a Dow ETF instead

While you could buy individual (or fractional) shares of all other 29 components of the Dow, a far simpler approach would be to invest in a Dow exchange-traded fund (ETF) like the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA). The ETF charges a 0.16% expense ratio and has a respectable $37.7 billion in net assets. Because the Dow is a price-weighted index, Nvidia is a relatively small holding, making up just 2.1% of the index. So investing $1,000 in the SPDR Dow Jones Industrial Average ETF Trust basically means putting $979 in the other 29 components and $21 in Nvidia.

The Dow is a solid choice for folks looking for more value and income than the other index. The SPDR Dow Jones Industrial Average ETF Trust has a 26.2 P/E ratio and a 1.7% yield. This is a better value and offers more passive income than the 29.8 P/E ratio and 1.3% yield from the Vanguard S&P 500 ETF or the 41.2 P/E ratio and 0.6% yield from the Invesco QQQ Trust -- which tracks the performance of the Nasdaq-100 (the 100 largest components in the Nasdaq Composite, excluding financial stocks).

Approach Nvidia in a way that is best for you

In just a couple of years, Nvidia went from a notable tech stock to the most valuable company in the world -- disrupting the balance of the S&P 500, the Nasdaq Composite, and now the Dow Jones Industrial Average. This is great news for investors who are bullish on Nvidia, but not for folks who believe Nvidia is overvalued.

Since Nvidia makes up so little of the Dow, buying a Dow ETF is still a great way to get exposure to top companies without allocating too much to Nvidia. Other low-cost ETF ideas that may be worth a look if you're interested in more income and value are the Vanguard Value ETF, the Vanguard Mega Cap Value ETF, and the Vanguard High Dividend Yield ETF.

Nvidia is arguably the most unique company we've seen in decades because it has run up so fast, and yet, earnings are driving the narrative. In past years, we've seen exciting companies packed with potential produce outsized gains. The investment case for these companies rested on the expectation of quick revenue expansion and future profits. Nvidia, on the other hand, is delivering truly remarkable earnings growth right before our eyes, and doing so in a big way.

In its recent quarter, Nvidia delivered a record net income of $19.3 billion. For context, Microsoft's recent quarter saw $24.7 billion in net income.

Nvidia is one of the most profitable companies in the world, and it is also growing faster than all of its mega-cap tech peers. Until that changes, Nvidia will likely continue rewarding its investors. But that doesn't mean you have to buy the stock if it doesn't suit your risk tolerance.

Should you invest $1,000 in Nvidia right now?

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Value ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.