What happened

Shares of Arqit Quantum (NASDAQ: ARQQ) stock were slumping on Thursday. The stock started the day up as much as 16.6% but has since fallen sharply, down as much as 21.9% on the day. As of 12:48 p.m. EDT, Arqit Quantum stock is down 16.7% today. 

So what

Arqit Quantum completed its special purpose acquisition company (SPAC) merger that helped it enter the public markets less than a month ago. Like a lot of SPAC stocks that have a low float (which means there are a limited amount of shares being publicly traded) early in their trading history, small changes in demand from traders can cause huge changes in the share price. This is likely what is happening with Arqit Quantum.

A person blocking their eyes in response to something on a computer screen.

Image source: Getty Images.

Why are investors/traders so excited about this company? Because in its SPAC presentation, Arqit claims it can disrupt the encryption/cybersecurity market by bringing something called symmetric encryption to the cloud. According to the company, this can help solve encryption issues even if/when quantum computers greatly increase the capabilities of hackers (hence the company's name). 

The company is still in the very early phases but has large customer deals with companies like Verizon (NYSE:VZ), Northrup Grumman (NYSE:NOC), and a major payments provider. These large deals, along with other customers, have built a $1.1 billion backlog for Arqit Quantum at the time of its SPAC merger presentation.

Now what

While Arqit Quantum is making big claims and has a lot of potential future revenue coming, it currently is a tiny business. Management is only guiding for $14 million in revenue this year, which is small compared to the stock's market cap of $3 billion to $4 billion. The company is expecting $660 million in revenue in 2025, which would make the current market cap more palatable. But investors should understand that there is a ton of execution risk with Arqit Quantum stock -- no matter how promising the technology is.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.