Quantum Computing Investments: A Speculative Landscape

(Bloomberg) — Rigetti Computing Inc. and D-Wave Quantum Inc. have developed products that aren’t seeing much real-world application yet. These companies are running low on cash and are unlikely to generate significant revenue in the near future. Still, there’s a surprising enthusiasm among investors.

The stock prices for these companies have skyrocketed by over 1,900% in the last year, driven by optimism that their technology could be revolutionary. This remarkable growth has made them some of the top performers on the stock market, even outpacing well-known artificial intelligence firms like Palantir Technologies. With market valuations exceeding $10 billion, they are now valued more than established brands like Campbell’s Soup, despite accounting for a tiny fraction of actual sales.

Welcome to the unpredictable sphere of quantum computing investment—it’s one of the most volatile and debated areas in the financial market today. Companies here are endeavoring to create computers significantly more powerful than current models.

Supporters believe it’s just a matter of time before breakthroughs lead to transformative computing capabilities that could help address critical issues like diseases and climate change. In contrast, skeptics view this as a bubble, fueled more by hype than sound fundamentals, and they predict a reckoning when investors are forced to focus on actual earnings.

“If it works, it’s going to be huge and explosive,” commented Troy Jensen, an analyst at Cantor Fitzgerald, who tracks stocks in quantum computing like Rigetti and D-Wave. “Otherwise, it could be zero.”

This kind of all-or-nothing trading has been likened to biotechnology investments, where backers are ready to wait for years, hoping for big returns from risky stocks tied to drug development. The dynamics in quantum computing are mostly theoretical at this stage. While most agree that the potential is immense, there’s a lot of uncertainty about when or if it will materialize.

Nvidia CEO Jensen Huang stirred discussions earlier this year by suggesting that significant advancements could still be decades away.

Yet, interest in the field remains robust. The Trump administration has prioritized the development of quantum computing technologies. Recently, Fidelity International joined a funding round for Quantinuum, which has now been valued at $10 billion.

Quantum computers can perform calculations in parallel rather than sequentially like conventional computers, enabling them to process vast amounts of data. Last year, Google’s quantum computing chip completed a task in five minutes that would require a supercomputer a billion years to finish.

This incredible potential has led to soaring AI stock prices over the past two years, drawing investors eager to get in on what they believe could be a disruptive technology, even if that means investing in companies that are hard to value by ordinary metrics.

Haim Israel, head of global thematic research at Bank of America Merrill Lynch, likened the current atmosphere to the early days of OpenAI, suggesting that “Quantum is going to leapfrog everything.” He added, “Capital markets don’t want to miss this moment.”

Given the high hopes surrounding quantum computing, it’s not surprising that many investors have jumped into this speculative environment, especially during an era marked by meme stocks and AI enthusiasm. Major tech players, like Alphabet Inc., are also riding this wave. A recent report announcing a breakthrough in their Willow quantum computing chip sent the company’s stock up 1%, briefly boosting its market cap by around $30 billion.

However, some experts are casting a wary eye on the potential for a bubble. Bruce Cox, manager of the Harrington Alpha Fund, notes that soaring stock prices without corresponding earnings is a classic symptom of a bubble. “There’s no income, there’s nothing to keep going,” he remarked, indicating that the situation could easily become unsustainable.

Benchmark analyst David Williams recently increased his price target for Rigetti from $20 to $50, only to receive the most “hate mail” he’d encountered in over 14 years on Wall Street. The stock closed at $33.77.

It appears that the bubble might already be deflating. Both Rigetti and D-Wave have seen their stock values drop by over 34% from their recent peaks, losing nearly $12 billion in combined market capitalization.

To fully justify their current valuations, companies like Rigetti have an uphill battle ahead. For instance, Rigetti is projected to pull in about $20 million over the next year from development projects and sales of quantum processors, which translates to a staggering valuation of over 500 times its estimated sales. By comparison, Palantir trades at 72 times its forward earnings, while the Nasdaq 100 averages under 6 times.

Rigetti would need to achieve annual sales topping $600 million to match Nvidia’s valuation, which is currently based on 17 times projected sales. Analysts predict Rigetti will only reach $40 million by 2027 based on current forecasts.

Neither Rigetti nor D-Wave has responded to requests for comment.

Still, there’s little concern among analysts, with six out of seven covering Rigetti rating it as a “buy,” and all ten analysts following D-Wave also recommending it as such. Benchmark’s Williams remains one of the most optimistic, firmly believing in the market potential for quantum computing.

However, he does acknowledge that the stock’s rise has been buoyed by individual traders and those chasing momentum, and given the timeline for actual results in quantum computing, some volatility is expected. “Quantum will not be able to escape a broader market decline,” he warns.