Is quantum computing the next AI? Or is it the next Delorean, pretty to look at but not worth the hype? On paper, and in the research labs, the technology is amazing. Using principles of quantum mechanics, this new computing tech can process multiple calculations simultaneously. Quantum computing promises to open new horizons in the computer industry, with machines capable of far faster and far more efficient operations than even the best of today’s supercomputers.
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Last year, Google’s AI lab introduced Willow, a quantum computing chip that achieved a significant breakthrough by solving complex problems in under five minutes – a task that would take the fastest supercomputers 10 septillion years. This advancement demonstrated the potential for quantum computing to revolutionize various industries, leading to a surge in the stock values of publicly traded quantum computing companies, with some experiencing increases by factors of 4 or 5 or more just this past autumn.
That run-up came to a screeching halt earlier this month at the Consumer Electronics Show (CES) in Las Vegas. Speaking on the subject, Nvidia’s head Jensen Huang indicated his belief that truly viable quantum computers are still a long way off – at least 15 years away, and possibly 30. A few days later, Meta’s Mark Zuckerberg concurred, saying on the Joe Rogan podcast that quantum computers are at least a decade away. In response, quantum computing stocks crashed.
However, B. Riley analyst Craig Ellis, who ranks in the top 2% of Wall Street stock pros, believes that investors should not fear buying into quantum computing now. Ellis has looked into the details of Rigetti Computing (NASDAQ:RGTI) and D-Wave Quantum (NYSE:QBTS) and tagged them as the top quantum computing stocks to consider. Let’s take a closer look at why he’s optimistic.
Rigetti Computing
First up is Rigetti Computing, a quantum computing company founded in 2013 and headquartered in Berkeley, California. With ambitions as grand as the Industrial Revolution and the Information Age, Rigetti aims to redefine the future of technology. The company is developing scalable quantum computing systems, from the specialized chips needed for qubit processing to the advanced cold-temperature computer systems capable of carrying out quantum operations.
The potential speed and efficiency of quantum computing have applications in a wide range of industries. The company is developing quantum computing to answer the needs of large-scale financial institutions, medical research firms and their new drug discovery programs, advanced traffic routing systems, and even AI training programs. Some of these fields, such as AI, have already dramatically changed our technological landscape, and Rigetti, with its quantum computing, is ambitious enough to want to change that landscape even further.
Quantum computing looks great on paper, and under highly optimized laboratory conditions it has proven effective; the next step is to bring it to the real world. Rigetti is starting on this path with a number of partners in the private and public sectors, including such major names as MIT and NASA.
On a more practical note, Rigetti announced in December that it had, in partnership with Quantum Machines, successfully used AI technology to automate the calibration of a quantum computer. The successful operation demonstrates that there is a growing collaboration within the quantum computing field, and that AI has high potential as a calibration tool in that field. Later in December, Rigetti announced the public launch of its latest quantum computer, the 84-qubit Ankaa-3 system. The new system features a hardware redesign to enable faster performance with a lower error rate and is based on Rigetti’s scalable chip architecture.
Because quantum computing is so new, and has yet to be commercialized, Rigetti is currently operating at a net loss. In its last reported quarter, 3Q24, the company reported revenues of $2.4 million and operating expenses of $18.6 million. At the bottom line, the firm’s net loss per share came to 8 cents, an improvement from the 17-cent net EPS loss reported in 3Q23.
Rigetti Computing’s financial position drew positive remarks from top analyst Craig Ellis, who was also impressed by the new Ankaa-3 system and by the potential for scaling quantum computers to handle much larger workloads than existing computers.
“We believe late-November capital markets activity with an ATM and direct offering significantly bolstered cash balances to materially allay investor sufficiency concerns, while end-4Qs Ankaa-3 product announcement showed continued key system and error correction progress to augur well for the long term. In between, we believe GOOGL’s Willow, with its clear scalability progress, and a similar system from China researchers, showed superconducting gate model-based system potential to evolve from hundreds, to tens of thousands, and potentially millions of qubits. We believe development contracts, as now seen, and then an increasing array of production workloads could follow to lend increasingly significant commercial prospects, lifting RGTI and others,” Ellis opined.
Overall, Wall Street likes Rigetti – the stock has 6 unanimously positive analyst reviews, for a Strong Buy consensus rating. The shares are currently trading for $8.95, and today’s price bounce has pushed the shares above their average target price of $6.10; as a result, the stock shows a possible one-year downside of 32%. It will be interesting to see if the analysts revise their targets shortly. (See RGTI stock forecast)
D-Wave Quantum
The second stock we’ll look at, D-Wave, got its start in 1999 and maintains office locations in Palo Alto, California, and in Burnaby, British Columbia. The company originated as a developer and producer of high-end computer hardware, including early quantum computing components. The company boasts that it created a commercially available quantum computer as far back as 2011.
Today, D-Wave offers quantum computing as a full-stack tech provider, building and delivering systems for cloud services, application development, and various professional services – and providing full support for those systems. The company also provides the necessary software for its quantum computer systems, designed to realize the speed and efficiency advantages of the new computer technology.
D-Wave is developing its quantum computing systems to operate in an array of business segments, including manufacturing, logistics, mobility, government, and public sector organizations. In addition, the company makes quantum computing available for research purposes, in everything from materials sciences to the latest AI.
Quantum computing promises enormous gains in all of these fields, but AI in particular stands to gain. The AI boom has fueled much of the tech field’s recent gains, but AI technology is rapidly approaching a point of diminishing returns, a computational challenge caused by a combination of increasing cost, increasing power needs, and increasing demands for computing capacity and memory. An increased integration of quantum computing into the AI industry has the potential to resolve those impending computing challenges.
Like Rigetti above, D-Wave operates at a net loss. In 3Q24, the last quarter with results on record, the company’s loss came to 11 cents per share by GAAP measures, missing the forecast by a penny per share. On a more positive note, D-Wave announced earlier this month that its total bookings for fiscal year 2024 will hit above $23 million, for a year-over-year gain of 120%.
Checking in again with B. Riley’s Ellis, we find the top analyst taking an upbeat view of D-Wave, noting in particular that this company has a clearer path than its peers toward the commercial application of quantum computing.
“Our view on QBTS as a differentiated tile in the quantum mosaic has been based on what we believe is a clearly visible commercial uptake path. We now add high-ASP systems sales as part of the go-to-market and revenue mix for QBTS. In addition, absolute stock strength from 1Q24 through 3Q24 enabled capital-raising activity to complete a $175M ATM on 12/12/24 and lift EOQ cash to a substantial $178M, which we believe could cover over two years of opex… We believe further commercial progress and balance sheet improvement since we last set our price target are significant and reflect that in our new price target, which rises from $4.50 to $9.00,” Ellis stated.
That $9 price target indicates room for a one-year upside of 90% and supports Ellis’ Buy rating on the stock.
All in all, QBTS shares have a unanimous Strong Buy consensus rating, based on five recent positive analyst reviews. The shares are currently trading for $4.73, and their $6.56 average price target suggests a potential one-year upside of ~39%. (See QBTS stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
