Shares of Rigetti Computing — a Berkeley, Calif.-based provider of full-stack quantum computing services — have risen 1,756% in the last year, according to the Wall Street Journal.
This raises many questions: What is quantum computing? Is Rigetti a strong competitor? Are the company’s shares overvalued? Will the shares keep going up?
My quick answers:
- Quantum computing replaces traditional computing’s bits that store either a 0 or a 1 with qubits, which can hold a combination of a 0 and a 1 enabling two qubits to hold four values thanks to exotic metal chilled to about 460 degrees below zero, according to the New York Times;
- Rigetti is a moderately strong competitor with declining revenue and the cash to survive its burn rate as it launches new products;
- The company’s shares — 16.9% of which are sold short, the Journal noted — could be very overvalued; and
- Despite trading at 480 times last year’s sales, Rigetti stock could rise — especially if tech giants — like IBM which says it is generating revenue from about 250 quantum computing clients, the Journal reported, Google, or others announce attention-grabbing news about their quantum computing advances.
In my view, Rigetti stock is a good barometer of investors’ fear of missing out on the next big thing. If they did not buy Nvidia stock before the generative AI wave began, they may be buying shares of Rigetti to avoid making the same mistake with quantum computing.
Quantum Computing: Reality And Hype
Quantum computing has been a work in process for a long time. But my ears perked up last November when the CEO of a cybersecurity company told me he is preparing contingency plans for the possibility that quantum computing could break public key encryption — a fundamental way to secure identities.
Last month, Google announced a quantum computing breakthrough, which sent shares of Rigetti and other pure play industry participants parabolic. How can an investor separate the reality of quantum computing from the hype?
In my view, the hype is getting ahead of the reality. To start, here are five realities of the technology:
- In December 2024, Google announced its Willow-powered quantum computer was way faster than a traditional supercomputer. Google’s quantum computer, based on a computer chip called Willow, “needed less than five minutes to perform a mathematical calculation that one of the world’s most powerful supercomputers could not complete in 10 septillion years, a length of time that exceeds the age of the known universe,” reported the Times.
- Quantum computing makes too many errors to be of significant practical use. Google’s machine was a test to measure quantum computing’s progress and does not perform work useful for solving practical problems in other fields — such as medicine. While quantum computing could some day render classical machines obsolete, “the technology still makes too many mistakes to be truly useful,” the Times noted.
- With help from about 30 years of advances, Google scientists showed progress in reducing such mistakes. Google exponentially reduced the number of errors through complex analysis by increasing the number of qubits. Experts believe “it is only a matter of time” before quantum computing realizes its potential. “People no longer doubt it will be done,” Harvard physics professor Mikhail Lukin told the Times. “The question now is: When?”
- U.S. tech giants are competing with Chinese government programs for quantum computing supremacy. Google is joined by Microsoft, Intel and IBM, which are building similar technology in competition with the Chinese government which claims to be investing “more than $15.2 billion into quantum research,” the Times reported.
- By 2030, quantum computing could undermine an important cryptography algorithm on which much cybersecurity depends. Quantum computing is expected to develop to the point where it will become “possible to hack into the existing RSA cryptography algorithm,” said CyberArk CEO Matt Cohen, according to my November 2024 column on Forbes.
Quantum computing has been “touted as the next revolution in technology,” according to Quantum News. Rather than being poised to solve complex problems that currently defy solution, experts believe quantum computing is “still in its infancy.”
Two technical challenges must be solved before the technology’s promise is realized:
- Decoherence — which renders calculations useless — occurs when interactions with the environment disrupt fragile quantum states. Solutions for decoherence — such as quantum error correction and dynamical decoupling — are at the early stages, reported Quantum News.
- Scalability. To be useful, quantum computers must incorporate thousands or millions of qubits. However, the complexity of the systems required to control so many qubits makes scalability difficult. Google’s recent breakthrough is promising — but too fragile for “prime time,” Quantum News noted.
Rigetti’s Products, Performance And Prospects
Founded in 2013, Rigetti makes quantum integrated circuits used for quantum computers and provides Forest, a cloud computing platform that enables programmers to write quantum algorithms.
Rigetti’s most recent financial performance fell short of expectations. For the September 2024-ending quarter, the company reported $2.4 million in revenue — which was down 23.4% from the year before and 30% below analyst expectations. Moreover, the company generated a $14.8 million loss in the quarter, according to Google Finance.
Despite the losses, “the company maintains strong liquidity with cash, cash equivalents, and securities totaling $92.6 million,” TipRanks reported.
Rigetti plans to introduce new products in 2025. “By mid-year 2025, the Company expects to release a 36-qubit system based on four 9-qubit chips tiled together with a targeted 99.5% median 2-qubit fidelity,” according to a Q3 2024 earnings release.
“By the end of 2025, the Company expects to release a system with over 100 qubits with a targeted 99.5% median 2-qubit fidelity. Rigetti plans to develop the 336-qubit Lyra system thereafter.”
The company’s financial prospects are vague. Looking forward, Rigetti Computing’s “focus on developing scalable and high-performing quantum processors positions it to potentially gain a competitive edge in the burgeoning quantum computing industry,” noted TipRanks.
Rigetti’s Overvalued Stock Price
Rigetti stock appears highly overvalued. For example, the company’s $5.3 billion market capitalization is a whopping 480 times estimated 2024 revenue of $11.1 million, according to Yahoo! Finance.
In November, Rigetti wisely raised $100 million in a direct share offering — which diluted existing shareholders. Yet the company burned through a considerable amount of cash in third quarter and it remains unclear whether Rigetti will become cash flow positive.
Rigetti CEO Subodh Kulkarni is optimistic about the company’s future. “We believe that superconducting qubits are the leading modality for high performance quantum computers,” said Kulkarni in a company release.
“Rigetti’s system gate speeds consistently achieve an active duration of 60-80ns, which is several orders of magnitude faster than other modalities such as ion traps and neutral atoms. Our new multi-chip architecture will combine our strengths across our technology stack, and will be the result of our leadership in modular QPU design and performance optimization,” he added.
Will Rigetti Stock Keep Rising?
Analysts expect Rigetti stock to fall. Based on six Wall Street analysts’ 12-month price targets, Rigetti Computing stock would need to decline 74% to reach their $5.20 per share target, noted TipRanks.
One analyst, has a bearish view. “Buying $RGTI based on Google’s quantum success is as misguided as believing every TikTok guitarist is the next Taylor Swift,” Citron Research’s Andrew Left said via a post on X featured by TipRanks.
“When the hype fades, investors will recall $RGTI sold equity at $2 just two weeks ago, with more dilution to come rather than true quantum competitiveness. Still in science-project mode, even its biggest cheerleader troubled $RILY has target at $4, Was interesting at $1…ridiculous here!”
I think the the short sellers are right in theory. However, if Rigetti keeps selling shares as the company’s stock price rises, the cash the company raises could keep its science project going longer than the short sellers can withstand.
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