Chip maker Advanced Micro Devices, Inc. (NASDAQ:AMD) continued its hot run in 2018 by reporting above consensus fourth-quarter numbers and delivering a healthy first-quarter and full-year guide. AMD stock is up about 5% on the numbers.

The post-earnings rally brings AMD’s 2018 gains to more than 30%. Indeed, AMD is out-performing peers Nvidia Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC) in 2018.

But don’t let this bounce fool you. If you zoom out, Intel stock has roared from $32 to $50 over the past several months. NVDA stock has gone from under $100 to nearly $250 in the past year.

And while AMD was a $2 stock roughly two years ago, it’s been stuck in neutral for the past year. Its bounced as high as nearly $15 three times and dropped to as low as $10 twice. But it’s ultimately just been range-bound between those two levels.

This recent rally looks like more of the same. AMD stock is climbing off of a $10 December low. While this run may continue into the foreseeable future, valuation will keep this stock from breaking its $15 ceiling.

Why $15 Is AMD’s Ceiling

AMD’s fourth-quarter numbers were very good. Growth was strong everywhere, a fitting ending to an exceptional 2017.

In 2017, revenues jumped 25% higher as the company grew market share in all-important secular growth markets. Gross margins expanded 300 basis points from 31% to 34% thanks to a healthier mix of higher-margin products. Most impressively, this money-losing operation became a money-making operation and reached full-year profitability with 17 cents in earnings per share.

This whole narrative will continue into 2018 and beyond. This year will be big for the company’s server business as the company ramps up production of Epyc. The server business could be one of AMD’s most-promising segments, considering its reach into hyper-growth cloud data-center providers like Microsoft Corporation

(NASDAQ:MSFT). Ramp here should keep revenue growth positive while also allowing for continued gross margin expansion and earnings growth.

But just how much growth are we talking about here? After all, now that AMD is a consistently profitable company, investors will need to see robust earnings growth to justify its valuation. However, I don’t think AMD can grow earnings at a high enough clip to justify a price tag north of $15.

AMD Stock Can’t Sustain the Valuation

Earnings are expected to more than double this year. That is tough to see happening considering revenue growth is expected to be barely double-digits (not a repeat of last year’s 25% growth) and gross margins are expected to expand just 200 basis points. A lower tax rate does make the doubling of earnings feasible, but I still think its a long shot.

Nonetheless, let’s accept this year’s estimate as fact. Let’s also accept next year’s estimate (which calls for 50% growth) as fact, even though that also seems unreasonably high given revenue growth of just 8-9% and gross margins that will start to look maxed out by then.

What happens then? Well, revenue growth will have settled into this mid-to-high single digit range. Gross margins will likely expand in the range of 100 basis points or less per year. Operating expenses should get levered, and that should drive healthy operating margin expansion.

Put that all together, and at best, AMD grows earnings around 20% per year after 2019.

That isn’t enough to justify a price tag above $15 on AMD stock.

Fast-forward to 2019 and assume estimates call for 30% growth in 2020. That would put 2020 expected earnings at $0.69. The S&P 500 is currently trading at a 30% premium to its long-term earnings growth rate. If we throw that same premium on AMD in 2019 with a 20% long-term earnings growth rate, that means that AMD stock should trade at 26-times forward earnings on 2020 expected earnings $0.69. That gets you to an $18 price target by 2019-end/2020-beginning.

Discount that back by 10% per year (so 2 years), and you get to a present value of just under $15.

Not surprisingly, that is a place AMD stock has failed to trade above.

Bottom Line on AMD Stock

The trend looks good in AMD stock for now, but this is a stock that has a tendency to both rise big and drop big.

Don’t let this recent rise fool you. AMD stock will likely keep heading higher, but it will run into resistance in the $14 range. The trend will likely reverse if this stock gets close to $15. Valuation simply doesn’t support a price tag above $15.

As of this writing, Luke Lango was long NVDA and INTC.