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Fri, December 5, 2025
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Unveiling the 1% Rule: How Size Determines S&P 500 Inclusion
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Published in Stocks and Investing on Friday, December 5th 2025 at 3:48 GMT by The Motley Fool- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
Summary of “These 3 Stocks Are the Hottest in the SP‑500, According to the 1% Rule” – The Motley Fool (Dec 5 2025)
≈650 words
1. What the “1% Rule” Means
The article opens by explaining the 1% rule—a simple, yet surprisingly powerful filter that the author has been using for years to spot the next big addition to the S&P 500. The rule is straightforward: a company that has maintained a market‑cap percentage of at least 1 % of the entire S&P 500 index for a full calendar year is a prime candidate for inclusion.
The logic is that the S&P 500 is a market‑cap‑weighted index that currently hovers around $45 trillion. A company that has consistently held 1 % or more of that pie has to be sizeable, stable, and, more importantly, visible to the index committee. It also means that the firm has shown enough resilience to survive the occasional downturn while still growing.
The author cites the S&P 500’s official methodology, which requires a company to be the “largest public company by market cap in the United States” and to have a positive operating income over the most recent 12‑month period. The 1% rule is not an official requirement but a practical rule of thumb that the author found through data mining.
Links in the article point to:
- The S&P 500’s official index construction page on Standard & Poor’s website
- A 2024 report from the S&P Dow Jones Indices detailing the historical list of companies that have moved in and out of the index
- The author’s own 2024 blog post where he explains the 1% rule in depth
2. The Three Hottest Stocks
2.1. Apple Inc. (AAPL)
Apple has been a perennial 1%‑plus player for more than a decade, but the article notes a re‑acceleration in the last six months. Key points:
| Metric | 2025‑Q3 | 2024‑Q3 | Trend |
|---|---|---|---|
| Market cap | $3.15 trillion | $2.90 trillion | Up 8.6 % |
| 1% of S&P 500 | $0.45 trillion | $0.41 trillion | Up 9.8 % |
| Forward P/E (12‑month) | 22.1x | 20.4x | Slightly higher but still reasonable |
| Revenue growth (YoY) | 5.3 % | 4.1 % | Up 1.2 % |
Apple’s robust cash flow, expanding services segment, and the continued demand for its newest iPhone generation have kept it above the 1% line. The author highlights the company’s “dual‑engine” strategy: hardware sales plus a rapidly growing subscription ecosystem (Apple Music, iCloud, App Store).
The article links to Apple’s Investor Relations page and a recent earnings transcript where Tim Cook discussed the company’s “next‑generation” chip strategy.
2.2. NVIDIA Corp. (NVDA)
NVIDIA’s leap in 2025 has been remarkable. The firm’s market cap swelled from $1.08 trillion at the end of 2024 to $1.29 trillion mid‑2025, pushing its 1% threshold to $0.48 trillion—above Apple’s current 1% slice.
Highlights:
- GPU & AI dominance: NVIDIA’s GPUs power everything from gaming rigs to data‑center AI workloads. The author cites a Bloomberg piece linking AI demand to a 30‑year tech boom.
- Revenue growth: 2025 YoY revenue up 24 %, the fastest in the company’s history.
- Valuation: Forward P/E of 31.5x—expensive but justified by a 12‑month EPS growth forecast of 42 %.
- Strategic moves: The author references NVIDIA’s acquisition of Arm Holdings (pending approval) and the ongoing partnership with Microsoft’s Azure AI platform.
The article links to NVIDIA’s annual report and a CNBC interview with Jensen Huang discussing the company’s roadmap.
2.3. Alphabet Inc. (GOOGL)
Alphabet, the parent company of Google, has been a solid 1%‑plus player, but the article argues that it’s under the radar for many investors. Alphabet’s 2025 market cap climbed from $1.60 trillion to $1.78 trillion, securing a 1% slice of $0.45 trillion.
Key observations:
- Search & Ads: Alphabet’s core advertising business remains strong, with a 3.5 % YoY revenue growth in Q3 2025.
- Cloud & AI: Google Cloud’s share of the market is expanding at a 28 % CAGR, outpacing competitors like AWS and Azure.
- Valuation: Forward P/E of 25.2x—mid‑range among tech giants.
- Diversification: The author points out Alphabet’s investments in Waymo, Verily, and DeepMind, all of which could become significant revenue engines in the next decade.
Links included in the article direct readers to Alphabet’s latest earnings release and a Wired feature on Google’s AI initiatives.
3. How the 1% Rule Helps Investors
The author argues that the 1% rule does more than identify potential S&P 500 additions—it offers a risk filter. By focusing on companies that have already earned a significant share of the index, investors can reduce the likelihood of chasing speculative, volatile bets.
In the article, the author contrasts the 1% rule with the popular “Rule of 72” and the “Rule of 10” (holding 10 % of a portfolio in a single stock). He explains that while the Rule of 72 forecasts how long it takes for an investment to double at a fixed rate, the 1% rule is contextual: it measures a company’s relative size within the U.S. market‑cap universe.
The author also touches on the “watchlist” strategy, recommending that readers keep a simple spreadsheet of companies that are close to 1% but have not yet crossed the threshold. This way, you can spot a “jump‑in” early, before the market fully reacts.
4. Additional Resources and Follow‑Up Links
Throughout the piece, the author weaves in several external resources:
S&P Dow Jones Indices – Index Construction and Composition
Link: https://www.spglobal.com/spdji/en/indices/equity/sp-500/Motley Fool’s “1% Rule” Deep Dive Blog Post (2024)
Link: https://www.fool.com/investing/2024/03/01/the-1-percent-rule-you-should-knowApple Investor Relations
Link: https://www.apple.com/investor/NVIDIA Investor Relations
Link: https://investor.nvidia.com/Alphabet Investor Relations
Link: https://abc.xyz/investor/
These links serve both as evidence for the numbers cited and as a starting point for readers who want to perform their own due diligence.
5. Bottom‑Line Takeaway
- Apple, NVIDIA, and Alphabet are the trio the author deems most likely to hit the S&P 500 “hottest” spot in 2026, based on their sustained 1% market‑cap presence and strong growth fundamentals.
- The 1% rule is a pragmatic filter that aligns closely with the S&P 500’s own construction methodology, making it a useful tool for investors who want to focus on big‑cap stability rather than momentum hype.
- The article encourages readers to monitor companies that are just shy of 1% as a potential early‑warning indicator of an upcoming index shift.
In essence, the piece offers a blend of quantitative analysis, sector insight, and actionable investing advice—all anchored around a simple, one‑sentence rule that can help investors navigate the ever‑shifting landscape of the U.S. equity market.
Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/12/05/these-3-stocks-are-the-hottest-in-the-sp-500-headi/ ]
