Rigetti Computing Stock Is Up 1,756%. Why Shares Could Fall
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:
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 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:
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:
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 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.
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.
Quantum stocks like Rigetti plunge after Nvidia's Huang says the computers are 15 to 30 years away
Quantum computing stocks dropped Wednesday after Nvidia CEO Jensen Huang declared that useful quantum computers are many years away.
"If you said 15 years for very useful quantum computers, that would probably be on the early side," he said during Nvidia's analyst day. "If you said 30, it's probably on the late side. But if you picked 20, I think a whole bunch of us would believe it."
Huang said he believes Nvidia will play a "very significant part" in creating the computers and helping the industry "get there as fast as possible."
Stocks tied to quantum computing tumbled on the heels of the comments, with Rigetti Computing plunging 40%, while IonQ shed more than 32%. D-Wave Quantum dropped more than 38%, while the Defiance Quantum & AI ETF fell 5%. Quantum Computing, which announced a stock offering to raise $100 million, sank 39%.
The sector had gotten a lift into the end of 2024 as excitement around quantum computing exploded after Google revealed its latest Willow chip, which it said performed better than its 2019 predecessor at reducing errors.
The excitement boosted shares into year-end, with Rigetti and D-Wave rallying 1,449% and 854%, respectively.
Supporters of quantum computing say it will be able to perform computing tasks regular computers are unable to do, and process far larger volumes of data.
However, many investors have warned that it may be too early to rule out proper winners in the sector and real-world use cases for the technology.
