There are crowded trades, and then there are really crowded trades. The sentiment surrounding Advanced Micro Devices (NASDAQ:AMD) has been ultra-bullish for a year and a half now. This story could have a very unhappy ending, so now’s not the time to be greedy with AMD stock.

Note that I didn’t say AMD is a bad company. It’s just that valuation-related concerns are largely being overlooked. Plus, AMD has a major issue in China that can’t just be ignored. Hence, it will be fine to invest in AMD at some point, but only at a more favorable price point.

AMD Stock Wobbles as Sino-U.S. Tech War Rages On

Not long ago, InvestorPlace contributor Tyris Torres reported AMD stock fell 10% in a week. This occurred as China’s government announced its plan to phase out U.S.-produced chips in the country’s government computers/servers.

Of course, this is bad news for U.S.-based chipmakers like Intel (NASDAQ:INTC) and AMD. Overall, the “tech war” between China and the U.S. could be deeply problematic for AMD’s bottom line.

The share-price drawdown showed just how vulnerable AMD stock really is. Expectations are quite high for the company, especially after AMD’s 4,000% year-over-year EPS gain (no, that’s not a misprint) in 2023’s fourth quarter.

Sky-high expectations might feel good in the moment, but they can also be a setup for disappointment. It’s unlikely that the Sino-U.S. “tech war” will be resolved anytime soon, and it could weigh heavily on AMD’s financials in the coming quarters.

Too Much Optimism for AMD

Torres also pointed out that most analysts on Wall Street have assigned a “strong buy” or “buy” rating to AMD stock. Torres further noted that analysts with Jefferies, JPMorgan, Goldman Sachs and Baird raised their AMD share-price targets.

Contrarian investors should bristle, not celebrate, when they see so much optimism despite AMD’s problems in China. They should also wonder whether analysts and short-term stock traders are willfully ignoring AMD’s valuation.

Remember, AMD stock rallied from $60 to $200 during the past year and a half before it started to roll over recently. Now, there’s a cavernous gap below to potentially be filled.

It’s worrisome that AMD has a GAAP-measured trailing 12-month price-to-earnings ratio of 341.64x (again, not a misprint). To give you some perspective on this, the sector median P/E ratio is 28.75x.

AMD Stock: Here’s Where I’m a Buyer

You can like AMD as a company but also acknowledge the company’s issues and challenges. Keeping your optimism in check could prevent you from incurring substantial losses later on if other investors panic-sell their AMD shares.

You need to pick your own buy price, but I’ll get interested if and when AMD stock falls to $125. That, in my estimation, would present a more favorable reward-to-risk profile for prospective AMD investors.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.