Alphabet has announced that a 20-for-1 stock splitIn its Q4 2021 earnings report on Tuesday – for all 3 classes of its stock. 

The earnings report had sent shares higher than 8% before it was released. Alphabet’s Class A sharesClosed at $2,753. These shares were Google’s main share class up until 2012. They trade slightly higher than its Class C shares which have no voting rights.

That would translate to $137.64 when split-adjusted.

IBMThe closing price of the stock on Tuesday was $135.53. Big Blue’s shrinking is due to IBM’s recent spinoff of Kyndryl (its managed infrastructure company) and Watson Health (its data and analytics firm for healthcare companies), respectively. Even before these spinoffs, IBM had been plagued with growth problems for many years.

IBM could be one of the candidates to get out from under the Dow. Maybe. Would the index committee consider Alphabet, a stock that has higher potential for growth?

This discussion may be facilitated by the stock split. Alphabet was unable to participate in the Dow Industrials price-weighted Dow Industrials for years due to its high price. Alphabet could theoretically be traded for IBM after the stock split, as they are roughly the same stock prices.

Does Alphabet’s share-class situation affect its eligibility for the index? This is something that the index committee will have to determine.

It’s also worth noting that while many investors think of Alphabet as a tech stock, for indexing purposes, S&P Dow Jones categorizes it in the Communications Services category. IBM is, in fact, a pure-play technology stock.

So trading IBM for Alphabet would shake up the sector weightings in the Dow – another factor the committee would have to evaluate. This would give more prominence to the Communication Services sector, which is underrepresented. According the latest S&P DJ Indices Factsheet, the sector has a tiny 3.7% weighting in the Dow (third smallest in the index currently) compared to 22.2% for Tech.  

Compare that to the S&P 500, in which Communication Services makes up 10% of the index, while Tech is 29%.

Apple was the most recent tech company to join Dow. added in Mar. 2015Just nine months later, the 7-for-1 split was completed. fourth split in its history. (It was completed an alternative). 4-for-1 split in 2020.)