Glossary
Blue-chip stock
Blue chip sounds like a seal of quality. In practice it is a loose description of size and reputation, and two funds using the same words can mean different things.
A blue-chip stock is an informal label for shares of a large, well-established company. There is no single rule for which stocks qualify, so each fund or website that uses the term sets its own line.
Quick answer
A blue-chip stock is a share in a large, well-established company. The term has no single definition: one ETF uses the 150 largest U.S. companies by market cap [1], while another relies on its adviser's view of established firms [2]. Blue chips can still lose money.
Key points
- Blue chip is a descriptive label, not a rating, and fund prospectuses define it in different ways [2] [1].
- Size alone is no protection: large company stocks as a group have lost money on average about one year in three [5].
- Large companies may not grow as fast as successful smaller ones, one fund prospectus warns [2].
On this page
How do funds define a blue-chip stock?#
Each in its own way. The definitions below come from two ETF prospectuses filed with the SEC. They are shown to compare definitions, not as recommendations.
| Fund filing | How it defines blue chip |
|---|---|
| EA Bridgeway Blue Chip ETF (Oct. 2022) | Stocks of the largest 150 U.S. companies by market capitalization, generally above $46.6 billion as of June 30, 2022 |
| T. Rowe Price Blue Chip Growth ETF (May 2022) | Large and medium-sized firms that, in the adviser's view, are well established in their industries with above-average earnings growth potential |
Bridgeway definition [1]. T. Rowe Price definition [2].
One rule is a number, the other is a judgment. The first depends on market capitalization, the share price multiplied by the number of outstanding shares [3]. The second depends on what a fund manager believes about a company. Index committees use qualitative ideas too: a stock is typically added to the Dow Jones Industrial Average only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors [4]. Read what a stock index is for how indexes pick their members.
Are blue-chip stocks safe?#
No. Investor.gov notes that large company stocks as a group have lost money on average about one out of every three years, and that you can lose money you invest in stocks because there's no guarantee a company will grow and do well [5]. Both fund prospectuses above warn that investors could lose money [2] [1].
Size brings its own trade-offs. The T. Rowe Price prospectus warns that larger companies may not be able to attain the high growth rates of successful smaller companies and may be unable to respond as quickly to competitive challenges [2]. A portfolio of only blue chips can also be concentrated in a few sectors, so see diversification explained before treating them as a safe default.
Frequently asked questions#
Is there an official list of blue-chip stocks?
Are Dow Jones Industrial Average stocks blue chips?
Not by any rule we found. The Dow is a 30-stock index chosen by a committee using qualitative criteria such as reputation and sustained growth [4]. Being in an index does not make a stock safe.
The bottom line#
Blue chip describes large, established companies, but the line is drawn differently by every fund that uses it. Read the definition behind any blue-chip label, check the size with market capitalization, and remember that large company stocks still lose money in some years.
Sources
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
