Advanced Micro Devices (NASDAQ:AMD) stock has been on a tear thus far in December. After making a relatively big move during November it continues its assent. As a result, this AI chip contender has hit a new 52-week high. To many, it may seem as if shares could keep rallying, with the stock re-hitting its all-time high water mark, which was last hit back during the 2021 bull market. Then again, maybe not.

AI-related news has played a role in AMD’s continued run-up, but this hasn’t been the only factor at play. The impact of this more macro-related catalyst may prove short-lived. As I’ll explain below, this, plus existing risks related to the AI catalysts, underscore the need to exercise caution with this stock right now.

AMD Stock December Rally: Not Just Due to AI Chip News

Look at a stock chart, and it’s clear that the launch of the company’s MI300 data center GPU accelerator at its “Advancing AI” event on Dec. 6 was what kicked off this latest rally for Advanced Micro Devices shares.

However, as hinted above, there has also been a macro-related development that has provided additional runway for the December AMD stock rally. That would be the latest news on Federal Reserve interest rate policy. As you likely heard, the Fed is done with rate hikes. The chances of significant interest rate cuts in the coming year have gone up substantially.

This bodes well for all growth stocks. Valued more heavily on future results, lower interest rates help to raise their present value in the eyes of investors. However, while the prospect of lower rates helps to justify premium valuations for high-growth stocks, confidence that this will happen could easily snap back. That would be bad news for AMD investors.

Not only that, it’s possible that the market has overreacted too positively to the latest AI-related news. Despite being a top AI contender, Advanced Micro Devices still has much to prove.

Two Reasons Why Shares Could Correct/Pull Back

While only starting to take shape, it’s not as if investors have yet to price in the company’s AI catalysts into the price of AMD stock. After all, shares have more than doubled since the start of the year.

Following the many rallies, Advanced Micro Devices needs to meet, if not beat, current growth expectations for 2024, which include a forecasted 45.3% jump in earnings. However, as I’ve pointed out before, it may take more than just the launch of MI300 for this to happen. Demand for non-AI products or the launch of new AI products is crucial to meet expectations.

The stock, trading for 52.3 times forward earnings, trades at a premium to main competitor Nvidia (NASDAQ:NVDA), which trades for 40.7 times forward earnings. This valuation premium is due to the assumption that, just like with Nvidia in 2023, AMD will have its own “year of AI” in 2024.

If this fails to occur, shares are vulnerable to a correction. Before AMD’s potential disappointing results, the next interest rate catalyst could cause a downward move.

Bottom Line: Tread Even More Carefully Than Before

Last week’s Fed interest rate news, plus subsequent developments, strongly suggest 2024 will bring interest rates cuts. These could potentially move stocks fully back into bull market mode. Lower interest rates may finally bring an end to the slowdown in tech demand that has persisted since 2022.

Still, while lower rates may ultimately arrive within the next twelve months, another round of fear, uncertainty, and doubt related to elevated interest rates persisting through next year could always emerge. This could cause AMD to cough back its rate cut-related gains, and then some.

Add in the risk shares temporarily sink on near-term disappointment about AI growth, and it’s wise to tread even more carefully than before with AMD stock. Feel free to hold on, if you currently own it, but now is not an opportune time to enter/add to a position.

AMD stock earns a B rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.