No matter what your opinions are about Advanced Micro Devices (NASDAQ:AMD), you can agree that it’s never an uneventful day for the semiconductor company. This year, AMD stock has again defied the bears, skyrocketing 127% since the first of January. With AMD earnings coming up on Wednesday, it’s time to take a closer look.

To put this year’s monster gain into context, AMD shares also had a banner year in 2016, profiting shareholders over 300%. In 2017, AMD stock suffered the inevitable slowdown. However, the tech firm only lost 10%, hardly what you would consider a genuine correction.

Of course, long-term shareholders in AMD have seen everything under the sun. Therefore, I’m sure the proponents aren’t worried about the company’s latest fallout. On Friday’s session, AMD stock dropped more than 11%.

However, the volatility feels different this time around. Obviously, we’re dealing with a broader market selloff which has impacted nearly everyone. Specific to AMD stock, though, headwinds have finally arrived to take down some of the crazy enthusiasm.

Most prominently, New Street Research analyst Pierre Ferragu cast doubt on the valuation for AMD stock. In order to achieve rationality, AMD would need to sell $2.5 billion worth of server CPUs, and $3.2 billion PC CPUs. According to Ferragu, that’s simply not possible, especially because AMD is going head-to-head with Intel (NASDAQ:INTC) in key product markets.

Recently, AMD stock enjoyed a massive surge in sentiment because Intel had supply problems with its next-generation chips. If you compare AMD and INTC shares since the second half of this year, they’re mirror opposites.

Unfortunately for the former company, the free ride ended quickly. Multiple sources indicated that Intel is back on track with its production capacity. Now, Advanced Micro will have to face Intel without a critical advantage. It’s also a big distraction ahead of the third-quarter AMD earnings report.

Challenges for AMD Earnings

If history is our guide, the upcoming quarter should be a breeze for the suddenly embattled chipmaker. The last time an AMD earnings report missed its profitability was in Q3 2015. And I believe that we’re in store for another beat. The question is, will it be enough?

For Q3 2018, Wall Street pegs consensus earnings per share at 12 cents. This is decidedly near the lower end of individual estimates, which range from 11 cents to 15 cents. In the year-ago quarter, Advanced Micro delivered an EPS of 10 cents against an eight-cent consensus target.

The revenue picture presents an opposite tale. Covering analysts expect the company to haul in $1.7 billion in sales. This is right at the top of the individual estimate spectrum, which ranges from $1.6 billion to $1.7 billion. In Q3 2017, Advanced Micro rang up revenue of $1.64 billion.

As I mentioned, these are reasonable targets. At the bare minimum, AMD should hit them without fuss. But the trajectory of AMD stock will depend entirely on the margin of victory.

After the chipmaker released its Q2 results, AMD stock jumped over 47%. That’s including the fact that shares dipped significantly since late September. This is a massive jump from one quarter to another. It also echoes what we saw between Q1 and Q2, when shares gained over 65%.

Prior outstanding successes don’t necessarily doom AMD stock. However, investors need a reason to justify AMD’s now rich valuation. The last two quarters were impressive on a year-over-year basis. But if management hits EPS consensus for the upcoming Q3, that would represent a 20% lift YOY. A solid beat, yes, but not enough to justify a price tag of 80-times trailing earnings.

AMD Stock Has Gone Too Far, Too Fast

Now I know from prior experience that AMD stock can make a fool out of any critic. The underlying company has impressive technologies that you shouldn’t ignore.

At the same time, AMD has an intensely emotional backing. Such an environment can cause people to make trading mistakes that they normally wouldn’t. Given how quickly shares have skyrocketed, I think the sensible approach is to wait this one out.

Moreover, companies like Intel and Nvidia (NASDAQ:NVDA) provide better alternatives for semiconductor speculation in my opinion . Both INTC and NVDA offer greater resources that can help weather difficult storms. Plus, Intel pays a fairly generous dividend, which isn’t something to overlook in this current market cycle.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.