Quantum computing stocks took a dive Wednesday after investors' perceptions about the outlook for the sector were dramatically corrected.
Valuations in the nascent space had been riding high for about a month -- ever since Alphabet (GOOG +2.77%) (GOOGL +2.81%) unveiled its new Willow quantum computing chip, which achieved benchmarks never reached before, including performing calculations in minutes that would have taken standard supercomputers billions of years.
However, a simple comment from Nvidia (NVDA +2.71%) CEO Jensen Huang took the air out of the sector, and quantum computing stocks Rigetti Computing (RGTI +3.47%), Quantum Computing (QUBT +0.40%), and D-Wave Quantum (QBTS +2.50%) all tumbled sharply. At their low points during Wednesday's session, all three were down by about 51%. As of 3 p.m. ET, Rigetti Computing was off by 41%, Quantum Computing was down by about 40%, and D-Wave Quantum was off by about 30%.
Image source: Getty Images.
What Huang said about quantum computing
Huang is regarded as one of the greatest visionaries in technology and AI right now after guiding his semiconductor company to a valuation of more than $3 trillion following the launch of ChatGPT. Its graphics processing units (GPUs) and superchips are providing the processing power that new generative AI applications require, and demand for its components has been insatiable as cloud infrastructure providers and others rush to build out hardware platforms that can support the growing use of those applications.
Because of his position in the industry, investors pay close attention to his comments. It was therefore noteworthy when, during a Q&A session at CES in Las Vegas Tuesday evening, Huang said that he thinks it will be quite some time before quantum computers make a significant impact.
"If you kind of said 15 years for very useful quantum computers, that would probably be on the early side," Huang said. "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."
Stocks in the quantum computing sector reacted in unison, immediately selling off. The market's reaction should not come as a surprise as those same three stocks had surged following Alphabet's Willow announcement last month, providing them with boosts based largely on hype and sentiment. All three companies have minimal revenue, meaning that their stocks are largely bets on some kind of future monetization of quantum computing.
Rigetti Computing, for example, had gained nearly 2,000% in the last 12 months prior to Wednesday's sell-off, even though it generated just $2.4 million in revenue in the third quarter. It had operating expenses of $18.6 million in Q3, which seems like a small budget for a company pioneering breakthrough technology, aiming to build the world's most powerful quantum computers, and valued at more than $5 billion at Tuesday's closing bell.
NASDAQ: RGTI
Key Data Points
Quantum Computing had jumped by nearly 3,000% before a more recent pullback, yet it generated even less revenue in the third quarter -- just $101,000. Focused on integrated photonics and quantum optics technology that includes applications like lidar, it spent $5.4 million in Q3. Quantum Computing's market cap was around $2.63 billion just prior to the sell-off.
NASDAQ: QUBT
Key Data Points
Finally, D-Wave Quantum reported $1.9 million in revenue, which was actually down year over year. The company calls itself the world's first commercial supplier of quantum computers, and is using a business model it calls quantum-computing-as-a-service (QCaaS). The company had $21.7 million in operating expenses in Q3, slightly more than Rigetti, and it finished the quarter with $29.3 million in cash. https://ir.dwavesys.com/news/news-details/2024/D-Wave-Reports-Third-Quarter-2024-Results/default.aspx D-Wave had gained more than 1,000% over the past year before Wednesday's slide.
NYSE: QBTS
Key Data Points
Why Quantum stocks could fall further
What was notable about Alphabet's Willow announcement was that what it achieved seemed to be more of a scientific research milestone rather than something readily applicable in a business environment. On Alphabet's own quantum computing roadmap, it reached only the second of six milestones. Though its recent accomplishments were significant, it has a long way to go before it will be able to build a large error-corrected quantum computer.
The blog post about Willow was also authored by Hartmut Neve, the founder and leader of Google Quantum AI, and seemed targeted at other scientists, rather than the business or investor community.
Finally, while Willow could kick off a fresh wave of funding and interest in quantum computing, it seems to make it clear that Alphabet is ahead in this race, and the tech giant also has the extremely deep pockets to maintain that lead over its development-stage competitors.
Investors considering quantum computing stocks may want to heed Huang's words, as all three of these companies have minimal revenues and small balance sheets. Near-term breakthroughs seem unlikely.
These stocks have been almost entirely inflated by hype, and that can disappear quickly, as Wednesday's moves show.
Until quantum computing develops enough to tap into a significant monetizable opportunity, these stocks are best avoided, despite their potential to excite investors.
