The buzz around quantum computing reached a fever pitch at the end of 2024, and Quantum Computing Inc. (QUBT) has been at the center of the action, with its stock jumping up in value by over 2000% and giving back more than 600% in just the past three months. The company dabbles in complex problem-solving software and recently merged with a quantum hardware researcher, expanding its scope of potential offerings. While it isn’t shipping any hardware yet, its third-quarter report revealed promising partnerships and research programs that could usher in sales by 2025.
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Quantum is making significant strides in its U.S.-based Thin Film Lithium Niobate (TFLN) foundry, paving the way for scaling capabilities and penetrating new markets. Additionally, the company has secured purchase orders for its TFLN photonic chip foundry, marking a significant milestone. The stock sports a rich valuation for a company with little in the way of current sales. Still, the tidal wave of market enthusiasm for quantum computing continues to be the animating force propelling the stock. Investors should expect volatile highs and lows as the company travels the long path to profitability and quantum advantage.
Foundry Launch Catalyzes Growth
Quantum Computing is a player in the field of quantum optics technology and integrated photonics, pursuing offering affordable and efficient quantum machines. Initially, the company concentrated on delivering software and algorithms compatible with quantum computing hardware from other firms. However, after merging with a quantum hardware researcher, it began exploring the possibility of selling its computing systems. As of now, Quantum does not ship any hardware.
The company is making significant progress in developing its U.S.-based Thin Film Lithium Niobate (TFLN) foundry in Tempe. The foundry, nearing the final commissioning stages, signifies a crucial milestone toward scaling its capabilities and penetrating new markets. Recent sales efforts under new management have begun to produce visible results, including securing agreements for its chips and orders for its machines, including the receipt of its third and fourth purchase orders for its TFLN photonic chip foundry from a distinguished European technical university and a Canadian photonic integrated circuit (PIC) design house.
The European university seeks to utilize Quantum’s expertise in periodically poled lithium niobate (PPLN) structures for advanced telecommunications applications. This collaboration strategically aligns with the firm’s Foundry’s roadmap and wafer-scale technology. The order from the Canadian PIC design house, the company’s first from a non-research-based customer, involves the custom production of a TFLN PIC chip and prioritizes future access to a multi-project wafer run planned for the second half of 2025.
Previously Thin Sales with a Declining Gross Margin
In the third quarter of 2024, the company reported revenues of $101,000, an increase compared to $50,000 in the third quarter of the previous year. The surge was mainly due to the execution of a contract with Johns Hopkins University. However, the gross margin dropped from 52% to 9% during the same period.
Meanwhile, operating expenses were $5.4 million, down 18% from $6.6 million in the previous year’s second quarter. Reduced general and administrative expenses, including employee and consultant costs, spurred this decrease. The net loss attributable to common shareholders was $5.7 million, or $(0.06) per basic share in Q3 of 2024, lower than the $7.1 million, or $(0.10) loss per basic share in the same period of 2023.
Despite the loss, total assets increased to $76.8 million from $74.4 million in December 2023, mostly due to the secured convertible debt financing that raised net proceeds of $7.0 million in Q3.
Is QUBT a Buy?
The stock’s explosive growth at the tail end of 2024 has catapulted it up 1052% over the past year. It trades in the upper half of its 52-week price range of $0.35 – $27.15 and shows ongoing positive price momentum by trading above the 20-day (15.18) and 50-day (10.20) moving averages.
The company has been thinly followed by Wall Street (though I suspect that is changing). Recent coverage by Ascendiant’s Edward Woo was constructive, as he issued a Buy rating. However, his price target of $8.50 now seems stale given the extreme price movement of the shares since. I anticipate a revision.
TipRanks has the stock rated a Moderate Buy overall, though investors might want to monitor analyst activity for changes in the near future.
Final Thoughts on QUBT
The promise of all things quantum has generated a wave of excitement. The technology is groundbreaking and could potentially of revolutionize computing as we know it. However, the realization of that promise is still years (if not decades) away. Investors in the space face a roller coaster ride as companies like Quantum Computing pursue profitability and big breakthroughs in achieving quantum advantage. Riding the wave might prove worthwhile, but investors should be ready to patiently endure volatile price movement to get there.
