Two widely recognized stocks in the quantum computing sector might plummet by 52% and 77%, as per Wall Street predictions.
Title: Analysing Rigetti Computing and D-Wave Quantum: Quantum Leap or Quantum Fiction?
In a recent shockwave, Alphabet's subsidiary Google announced two groundbreaking achievements with its Willow quantum computing chip. In response, top players in the quantum computing industry, such as Rigetti Computing (RGTI) and D-Wave Quantum (QBTS), experienced substantial share price rises: 280% and 110%, respectively, over the following three weeks. However, Wall Street analysts aren't convinced, predicting sharp declines for both stocks in the coming months.
Quantum Revolution: Just Around the Corner or Light Years Away?
The term "artificial intelligence" (AI) emerged in the 1950s, with breakthroughs following at a steady pace. Yet, AI's practical value only became apparent to the masses recently, thanks to generative AI models. Similarly, while quantum computing holds immense potential, experts predict it might take a decade or more before it gets widespread adoption.
Google, with its latest Willow chip achievements, seems to share this optimistic yet realistic view. The company plans to reach commercially useful quantum computing applications through a six-step approach, but progress is slow, with the first two steps taking over a decade.
Meanwhile, the Grand View Research predicts a $4 billion quantum computing market by 2030, a paltry figure compared to the cloud computing market's estimated $2.4 trillion size by the end of the decade. In other words, the future of computing is likely rooted in cloud services.
Time to Pick Winners or Play It Safe?
The allure of quantum computing stocks is understandable, given the triple-digit returns of tech giants, such as Nvidia, from the past two decades. However, picking the eventual winners might prove more difficult due to the cutting-edge nature of quantum computing and the long time frame required for its commercialization.
Take the case of Intel, a tech titan worth $140 billion in the year 2000. Intel, then, had an upper hand in AI, given its market dominance. Yet, the younger and smaller Nvidia triumphed, and today, it's the undisputed leader in AI chips. The same story might repeat with quantum computing.
Rigetti Computing: A Visionary Venture with Unrealistic Expectations?
Rigetti Computing is a groundbreaker in quantum computing, boasting innovative gate-based quantum computer systems. Its reputation and services, reminiscent of Nvidia's success in AI, should be a promising sign. However, Rigetti's financial performance in Q3 2027 leaves much to be desired.
Revenues dropped by 24% to $2.4 million, and GAAP net income was a loss of $0.08 per share. This wasn't the only red flag. Rigetti reported a massive cash burn of $42 million in the first 9 months of 2027, while its cash reserves dwindled to $20 million.
The audacious valuation of RGTI shares further questions its economic viability. Trading at 180x sales, Rigetti's stock is way overpriced, especially when compared to the S&P 500's average price-to-sales ratio of 3. Despite the risks, some investors might be tempted by the potential gains, while existing shareholders might wonder if it's time to sell.
D-Wave Quantum: Living on Quantum Dreams?
D-Wave Quantum is another contender in the world of quantum computing. It's renowned for its quantum annealing technology and has clientele including Mastercard and Volkswagen. However, D-Wave's financial performance mirrors Rigeti's deteriorating situation.
In Q3 2027, D-Wave's revenue fell by 27%, equal to $1.8 million, and GAAP net income saw a loss of $0.11. Cash reserves are a concern, with D-Wave reporting a cash burn of $45 million through the first nine months of 2027, leaving $29 million in its kitty. With interest payments consuming more than half of revenue in the recent quarter, it appears that D-Wave's days may be numbered.
The stock's market value also raises serious concerns. Currently trading at 115x sales, D-Wave's price-to-sales multiple is a heart-stopping figure, highlighting the market's unwarranted hype for quantum computing. Prudent investors might want to steer clear of this risky venture, while existing shareholders might want to think twice before holding on to their assets.
In conclusion, the recent achievements in quantum computing have generated immense buzz. However, the timeframe required for widespread adoption of this technology, along with the numerous financial challenges facing top contenders like Rigetti Computing and D-Wave Quantum, necessitates a measured and discerning approach from investors.
Despite the thrilling progress in quantum computing, Wall Street analysts suggest that investors should proceed with caution when considering stocks like Rigetti Computing and D-Wave Quantum. The financial struggles of both companies, including significant revenue drops and hefty cash burn rates, have raised concerns about their long-term viability. These challenges, coupled with their high valuations, which far exceed industry averages, make these stocks potentially risky investments, at least in the eyes of analysts. As for investing in quantum technology, it might be wise to watch from the sidelines until the market matures further and the promise of quantum computing becomes a reality.
