AMD (NASDAQ:AMD), known formally as Advanced Micro Devices, continues to see its stock march higher. Once seen as a company that couldn’t quite match its rivals’ innovations, it now contests and sometimes surpasses its peers. AMD stock finally reflects the company’s success, and it has moved ahead of the fundamentals.

While I think AMD has subsequently become one of the most influential players in the chip industry, I would caution against buying Advanced Micro Devices stock at these levels.

AMD Competes More Effectively Than Ever

In a recent article, I urged investors to stop thinking of AMD as second place. During the PC era, the company spent decades lagging arch rival Intel (NASDAQ:INTC). It was left for dead when the popularity of PCs waned. As a result, Advanced Micro Devices stock traded below $2 per share as late as 2015.

However, under the leadership of CEO Lisa Su, the company quickly rose to second-place behind its new archrival, Nvidia (NASDAQ:NVDA) in the graphics chip market. With the recent release of the Radeon Pro V340, investors increasingly see AMD as a full-fledged peer in this area as well.

I would now go so far to say it has relegated its long-time rival Intel to second-place status. The company is releasing its next-generation chips right now. Intel will not follow suit until 2019. Hence, this will give AMD a distinct advantage for months to come.

AMD Stock Moves Ahead of Itself

However, while I hold a great deal of admiration for what AMD has accomplished as a company, I believe the market has priced in these benefits, and then some.

I loved AMD stock in early April when it traded below $10 per share. However, now that the equity trades at about $33 per share, the investment thesis changes.

The consensus profit estimate of 47 cents per share takes its forward price-to-earnings (PE) ratio to over 70. The expected profit growth of 176.5% for this year and 36.2% for 2019 merits a premium PE. However, the stock has begun to trade at levels that do not justify its high rate of growth.

Also, the market has seen the emergence of the “it’s different this time” narrative with AMD. I have seen it not be different enough times to turn bearish when I hear this. My colleague Luke Lango takes a more bullish view on AMD stock.

However, he correctly points out that AMD twice lost more than 80% of its value during the last decade. I will counter that AMD has become a more effective competitor since that time. Still, I expect Nvidia and Intel to respond to these competitive threats. That response will hit AMD.

AMD’s Narrative Still Is Intact

That said, I would again move to the buy side on Advanced Micro Devices stock at a lower valuation. As I said before, AMD has become a full-fledged peer in the chip arena now. However, market caps do not reflect this.

Even with the inflated PE of AMD stock, the market cap stands at close to $33 billion. Intel, the one-time market leader now playing catch-up, still holds a market cap of over $200 billion.

Nvidia’s stands at $165 billion. I believe this discrepancy explains one reason why investors continue to flock to AMD stock despite a high PE ratio. I agree AMD will eventually achieve parity on market cap as well. That said, I would wait for a lower valuation.

The bottom line on Advanced Micro Devices stock

Although I see Advanced Micro Devices stock becoming a key holding for chip industry investors, I caution against buying at its current valuation. AMD’s technology matching Nvidia and now surpassing Intel in many areas. For this reason, I would no longer think of AMD as second-place.

However, the stock has more than tripled from its April lows. As a result, it holds a forward multiple exceeding 70 times earnings. Moreover, investors can count on Nvidia and Intel responding.

While I don’t foresee an 80-plus% drop, I do think Advanced Micro Devices stock will fall to a lower PE. Also, in the long run, AMD stock should come closer to the market cap of NVDA and INTC.

For this reason, I see a bright future. I would not discourage those who want to buy AMD for such a long-term play. However, I do recommend holding out for a lower multiple.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.