Chip-maker Advanced Micro Devices, Inc. (NASDAQ:AMD), who has had a red-hot start to 2018, didn’t have a great close at the end of last week. Just a few days before, AMD stock was bouncing on news that chips from competitor Intel Corporation (NASDAQ:INTC) were susceptible to a security flaw called Spectre.

The flaw made it possible for hackers to steal passwords or encryption keys on affected systems. AMD said the exploit poised a “near-zero” risk to its chips, so AMD stock popped on the thought that customers would migrate from Intel to AMD for security purposes.

But it looks like that migration may actually never happen.

AMD just announced that its microprocessors are susceptible to the Spectre security flaw. AMD stock, which had risen nearly 20% in 2018, dropped a few percentage points on the news.

Is this a buy the dip situation? Or the beginning of a longer-term correction?

I think the latter. Here’s why.

Financial Impact of Spectre Security Flaw Is Overblown

In the big picture, I don’t think this whole Spectre security flaw will be anything more than a blip on the radar.

There was a security flaw. Chip-makers rushed to issue updates. They did so in a timely fashion (Intel has said that 90% of systems should be updated by the end of this week), and without much of a performance hiccup (all of Intel’s major customers said performance was either not or negligibly affected). Now, things will go back to normal.

Granted, when the flaw was thought to have affected only Intel chips and not AMD chips, I did think that there would some (albeit minimal) customer churn at Intel and that those customers would find a home at the more security-intense AMD. Consequently, AMD rising and Intel stock dropping made sense.

But the degree to the rise and drop made zero sense. AMD is up 20% year-to-date. Intel stock is down 7% year-to-date. There is no way this minor bug, which had a quick and painless fix, will create that much of a financial boost for AMD or that much of a financial hit for Intel.

That thesis seems to make a lot more sense now that AMD chips are also affected. With chips from both companies affected, there shouldn’t be any customer migration. Without customer migration, these stocks should go back to where they were trading before the whole Spectre thing was priced in.

That puts Intel stock at $47 (versus $43 currently) and AMD stock at $11 (versus $12 currently). The stock price normalization may not happen right away, but I do think over the next several days, Intel stock will trend back towards $47 while AMD will trend back towards $11.

Bottom Line on AMD Stock

It got a nice boost from a supposed Intel-specific weakness. But now that this weakness is not Intel-specific, AMD should correct downward.

In the bigger picture, AMD is simply overvalued at $12. At best, I think this is a company with a 40-45% earnings growth narrative. That is big growth, but the current multiple (92-times this year’s earnings) is bigger.

If you give AMD a 100% growth premium (bigger than the S&P 500‘s 85% premium), that gets you to a fair earnings multiple of 85. A 85 multiple on $0.13 earnings estimates for this years gets you to a fair value of $11.

Perhaps not coincidentally, that is where AMD stock traded prior to the big Spectre boost.

Fade the rally? I think so.

As of this writing, Luke Lango was long INTC.