The rapid rise of quantum computing stocks has captured the attention of investors, particularly since Alphabet(GOOG -0.54%) (GOOGL -0.49%) announced a significant achievement in this groundbreaking technology. The company’s Willow quantum chip successfully completed a standard benchmark computation in an astonishing time of under five minutes—an operation that would take a traditional supercomputer an unimaginable 10 septillion years, or a 1 followed by 25 zeros, to perform.
Moreover, the Willow chip showcased its remarkable ability to exponentially reduce errors as it scales, effectively overcoming a challenge that scientists have wrestled with for almost three decades. This advancement positions quantum technology as a frontrunner in the realm of computational capabilities.
The news has propelled various quantum stocks like Rigetti Computing(RGTI -3.59%) to soar, although the market has remained volatile since. Other industry leaders, such as Nvidia CEO Jensen Huang, have cautioned that achieving “very useful” quantum computing might be further off than many investors anticipate, adding a layer of uncertainty to the excitement.
The chart below illustrates Rigetti’s stock performance over the past six months, highlighting significant fluctuations.
RGTI data by YCharts.
This chart clearly indicates that Rigetti was already gaining momentum prior to Google’s announcement, but it experienced a dramatic surge in value afterward. The stock’s decline in January was triggered by Huang’s remarks, adding to the market’s unpredictability.
Currently, Rigetti’s stock appears to be in a state of limbo as investors await more clarity regarding the quantum computing landscape and Rigetti’s position within it. So, is Rigetti Computing a worthy investment? First, let’s delve deeper into the company’s operations and prospects.
Image source; Getty Images.
Understanding Rigetti Computing: A Leader in Quantum Technology
Rigetti Computing is dedicated to creating the globe’s most powerful computing systems through quantum technology. The firm pioneered the world’s first multiple-chip quantum processor and began marketing quantum computers to end users in 2023, positioning itself as a pioneer in the industry.
Rigetti competes directly with traditional high-performance computing (HPC) systems, specifically the supercomputers utilizing Nvidia chips. However, quantum computers promise to resolve complex computational problems at significantly higher speeds and reduced costs compared to conventional HPC solutions, making them a potentially transformative technology in various sectors.
What sets Rigetti apart is its vertical integration strategy, as it owns and operates its manufacturing facility. This combination of laboratory and production capabilities provides the company with a competitive edge. While such ownership often entails higher capital expenditures, it grants Rigetti greater control over its production processes, cost management, and scaling capabilities.
Despite its innovative strides, Rigetti is still operating with minimal revenue. In the third quarter, the company reported just $2.4 million in revenues alongside an operating loss of $17.3 million. Rigetti is progressing on its technology roadmap and anticipates launching a system featuring more than 100 qubits by the end of 2025. A qubit serves as a fundamental unit of quantum information, critical to the technology’s functionality.
Management has not provided any long-term revenue projections, leaving uncertainty about when the company might achieve significant income. Yet, analysts forecast a modest revenue increase, with expectations of growth from $11 million in 2024 to $15.6 million in 2025, which highlights the developmental stage the company is currently navigating.
Evaluating Investment Potential: Is Rigetti Computing Worth Buying?
After the initial stock surge, Rigetti now trades at a remarkably high valuation multiple. However, this metric may hold little relevance for a company projected to generate only $11 million in revenue by 2024. The firm currently boasts a market capitalization of approximately $3 billion, leading to a price-to-sales ratio of around 300.
This significant market cap presents opportunities for substantial growth, yet it also carries the risk of steep declines if market perceptions shift or if Rigetti’s growth or technological advancements fail to meet expectations. The stock price drop following Huang’s commentary underscores how swiftly investor sentiment can change within this rapidly evolving sector.
While quantum computing presents immense potential and could revolutionize various industries, it’s crucial to remember that the success of the underlying technology does not guarantee the company’s prosperity. The competitive landscape is dense, with multiple startups and established tech giants like Alphabet actively vying for dominance.
Rigetti Computing showcases promising technology, but I would prefer to see more substantial evidence that it can maintain a viable business model before labeling the stock a recommended buy. Given its current valuation, the investment appears highly speculative. It may yield rewards for investors, but the likelihood of underwhelming performance in the near to medium term seems greater. At this juncture, any long-term predictions remain speculative.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
