Today’s popular investment narrative holds that artificial intelligence AI boom and the companies driving the AI revolution will dominate the future. The stock market followed suit in 2023 and 2024, with the Magnificent Seven—Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla—soaring to incredible heights. Relative valuation multiples of small-cap and value stocks plunging to levels not seen since the 2000 dot-com bust or the 2020 pandemic panic.

However, these IT behemoths haven’t been that impressive thus far in 2025. Some have stalled or even deteriorated, raising doubts about the ascendant narrative. Is the AI craze in the market really as bad as it seems? Is it truly different this time? Perhaps. Additionally, it’s possible that Keanu Reeves’s character, the title character of John Wick 5. may lay down his weapons, embrace nonviolence, and die an unworthy death. That is, perhaps, but most likely not.

Investors with extended time horizons should exercise prudence in the current market. Asymmetric risks are always a possibility in narrative-driven markets, and although history seldom repeats itself, it is impossible to overlook the parallels between the dot-com bubble of the early 2000s and the current AI boom frenzy.

But it doesn’t imply investors have a simple binary decision. A typical cap-weighted portfolio or its antithesis, a value approach that shuns the popular AI story outright, would each impose unwarranted constraints. Either method might underperform—either during the first boom or after the euphoria fades and the proverbial bubble bursts.

Instead, investors should weight their allocations based on a company’s actual economic footprint using a fundamental index. The Research Affiliates Fundamental Index (RAFI), for example, is based on economic realities as evidenced by corporate fundamentals. It provides a solid foundation for portfolios to handle the market’s inevitable ups and downs . While also capturing tremendous rebalancing alpha by decreasing or increasing allocations when a stock’s price deviates significantly from its underlying fundamentals.