Investor optimism has been building around Quantum-Si (QSI 2.48%), which has rallied some 80% so far in 2023 -- anchored by persistent buying from Cathie Wood's Ark Genomic Revolution ETF. It's been a rough road for shareholders of the protein sequencing specialist since it went public via a SPAC merger in 2021.

But is the company ready to take flight? Long-term investors should pause before piling into this would-be disruptor. Here's why.

So far, just barely a business

Quantum-Si has been billed as a lot of things: semiconductor stock, biotech stock, and, as the company's name implies, even something to do with quantum computing (although it doesn't have anything to do with that field).  Yet, first and foremost this is a technology start-up. Q1 2023 revenue was just $254,000 (the vast majority of it "product" sales), and net losses totaled $23.6 million.

At the end of March 2023, Quantum-Si said it had a backlog (orders that need to be completed) of about $200,000. Given that each of its flagship Platinum protein sequencing machines (more on that in a moment) retail for $70,000, it doesn't sound like the company's product is flying off the shelves just yet. Suffice to say it still appears Quantum-Si is a long ways out from generating meaningful sales, let alone profits.

What's the fuss all about?

Quantum-Si is a start-up with unknowable potential, but optimism is growing again (following the unsustainable 2021 bubble and subsequent 2022 crash). Why? The company is finally bringing its potentially disruptive protein sequencing equipment and services to market -- first to academic researchers and biopharmaceutical labs. As it sells Platinum devices, it expects sales of its consumables (sample kits and related products) and cloud software business to get rolling.

The Platinum device is a small desktop-sized piece of equipment that unlocks the ability to quickly sequence proteins (within a day versus typically days or weeks with existing equipment). This could have enormous potential in detecting and diagnosing disease, developing healthcare treatments, and more.

At the heart of Quantum-Si's technology is a proprietary chip system. In very simple terms, users load a lab sample onto a chip along with a protease (an enzyme that breaks down proteins). A fluorescent marker is added to the sample, and signals from it are read by the chip -- providing data that can then be uploaded to Quantum-Si's cloud software for analysis.

The result of the company's breakthrough is not only faster protein sequencing, but also far cheaper start-up costs for researchers. 

If you're skeptical about this being labeled as a "chip stock," Quantum-Si doesn't just have its own patented chip technology. It went a step further and acquired a very small, privately owned chip packaging company called Majelac in early 2022. After Quantum-Si's chip fabrication partners make its silicon wafers, Quantum-Si takes possession of them, dices them up into chips, and packages them up for use in the Platinum device and sample preparation kits.

Is the stock a buy?

All this is fine and well, but is Quantum-Si stock a buy? Let's keep this simple: Do not purchase this stock just because one of Cathie Wood's ETFs is buying.  There is a very low level of visibility into Quantum-Si's ability to generate revenue in the coming years, much less turn a profit. Despite this, the company is valued at a market capitalization of $458 million.

Granted, Quantum-Si had $322 million in cash and short-term investments (and no debt) on balance as of the end of March, giving a total enterprise value of just $136 million. However, the company will need that cash to fund its developing operation until it's financially self-sufficient, and that point in time is still some ways off. 

In other words, file this with other very high-risk, potentially high-reward small-cap stocks. Maybe this is the next huge semiconductor stock success story in the making, but maybe it's a total flop. It's simply far too soon to tell. If you decide to buy at all, Quantum-Si should be kept to a very small position, and part of a basket (perhaps a couple dozen or more) of other small bets.