Google’s (GOOG) recent unveiling of its quantum computing chip, Willow, has sparked a boom in quantum computing stocks, and D-Wave Quantum (QBTS) is one of the companies reaping the reward, with the stock surging up over 73% since the announcement. Yet, on its own merits, it is up over 615% in the past three months. D-Wave has been particularly active, with significant improvements in its processor, multiple strategic collaborations, and a successful $175 million stock sale.
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Despite its financial performance in Q3 2024 showing a decrease in overall revenue, management is forecasting an improvement in revenue for Q4 and a decline in adjusted EBITDA loss for Fiscal year 2024. The dramatic price increase has catapulted the valuation to stratospheric levels, so investors may want to put this stock on their watch list and let fundamentals catch up with the market’s animal spirits.
D-Wave a Quantum Thought Leader
D-Wave Quantum, a leader in quantum computing systems and the world’s first commercial supplier of quantum computers, has announced significant advancements in its quantum computing capabilities with the calibration and benchmarking of a 4,400+ qubit Advantage2 processor. The processor shows substantial performance improvements over the current Advantage processor system, solving complex computational problems in areas such as optimization, AI, and materials science 25,000 times faster and providing higher-quality solutions.
As one of the more well-established companies in the space, D-Wave has a leg up in designing and delivering quantum computing systems, software, and services as a commercial supplier of quantum computers. Its track record of over 200 U.S. patents and more than 100 peer-reviewed papers featured in prominent scientific journals underscores its leadership in advancing quantum computing science.
Commercial Aspirations and Collaborations
Among several quantum paths currently being pursued by industry firms, D-Wave views annealing quantum computing as pivotal for the commercial uptake of quantum computing. Due to its unique suitability for optimization problems, this technology is poised to revolutionize industries by addressing complex computational issues. It has the potential to benefit a broad spectrum of industries.
Strategic collaborations with major corporations, including Japan’s largest mobile phone operator, NTT DOCOMO, and Japan Tobacco Inc. (JAPAF), demonstrate the practical application of D-Wave’s technology in optimizing mobile network performance and drug discovery, respectively.
The company has successfully completed sales of $175 million in gross proceeds of its common stock, bolstering its financial stability and supporting ongoing technical development efforts and business operations.
Management Projects Revenue Improvement
The company recently reported results for Q3 of 2024. Revenue of $1.9 million was down 27% from 2023’s Q3 revenue of $2.6 million. Notably, the QCaaS segment revenue increased by 41% with $1.6 million, chiefly due to a higher average revenue per customer for D-Wave’s QCaaS subscription services. However, the professional services revenue decreased by 80%, amounting to $0.3 million. Total bookings for Q3 2024 were $2.3 million, a decrease of 22% from Q3 2023. The revenue by sector indicated growth from the government and research customers by approximately 66% and 47%, respectively, whereas commercial customer revenue declined by 4%. Consequently, the commercial revenue as a percentage of the total revenue dropped from 70.1% to 59.2%.
The customer base increased, with 132 customers in recent quarters, up from 125 in the preceding quarters. The commercial customers rose marginally from 75 to 76, and the Forbes Global 2000 customers from 26 to 27.
The GAAP gross profit decreased by 32% from Q3 2023, owing to a decrease in professional services revenue that was somewhat offset by higher QCaaS revenue. The GAAP gross margin also dropped by 3.9%. Operating expenses rose by 9%, chiefly driven by third-party professional fees and additional investments in go-to-market personnel and related expenses. Net loss for the quarter widened by 41% to $22.7 million from Q3 2023’s net loss of $16.1 million.
As of the quarter’s end, the company reported a consolidated cash balance of $29.3 million.
Following the third-quarter earnings report, QBTS’s management has given guidance for FY 2024. It projects an improvement on the full-year adjusted EBITDA loss of $54.3 million recorded in FY 2023 and anticipates an increase in revenue and bookings in Q4 2024 over Q3 2024.
Company Improves Its Liquidity
The stock has been highly volatile, posting a beta of 4.76, as it has climbed 778% over the past year. It trades at the high end of its 52-week price range of $0.68 – $7.70 and shows ongoing positive price momentum as it trades above all major moving averages.
Analysts following the company have been bullish on QBTS stock. For instance, Roth MKM’s Sujeeva De Silva, a five-star analyst according to Tipranks’ ratings, recently raised the price target on the shares to $7 and kept a Buy rating, noting the recent cap raise should improve the company’s funding position relative to the expected near-term cash burn.
Five analysts recently recommended that D-Wave Quantum be rated a Strong Buy overall. Their average price target for QBTS stock is $4.19, representing a potential downside of -34.94% from current levels.
The DL on D-Wave
D-Wave is seeing a remarkable surge in its stock, thanks to a rising tide powered by Google and its new Advantage2 processor, notable partnerships, and the completion of a successful $175 million stock sale. The company foresees an uptick in both revenue and bookings for Q4 2024. Yet, while the potential for this stock seems promising, it’s advisable to keep an eye on the company’s financial fundamentals to ensure they align with recent price momentum.
