In early December, Alphabet's Google announced a breakthrough in quantum computing that has the potential to push the entire industry forward. Its Willow quantum chip can reduce errors exponentially as it adds more qubits (the fundamental building blocks of quantum computing chips).
Error correction at scale is a challenge the industry has faced since the first quantum error correction function was introduced in 1995. Willow's breakthrough allowed it to solve a benchmark computation in 5 minutes that would take today's best classic supercomputer an estimated 10 septillion years to complete. The task is tailor-made for quantum computers and only useful for performance measurements, but that's still a big acceleration.
The technology introduced by Willow also opens the door for quantum computing companies to advance their own development and speed up their timeline for commercial viability.
Many quantum computing stocks have seen their prices skyrocket since Google's announcement. Some have gotten well ahead of Wall Street analysts' price targets, even as they rush to update their estimates.
But one stock could still see upside as high as 45% from its price as of this writing, based on the highest price target on Wall Street of $9 per share. Even the median price target ($7.50 per share) is 21% higher than its current price.
(Quantum computing stocks are nearly as volatile as qubits these days. So, by the time you're reading this, those numbers may look quite a bit different.)
Here's why Wall Street thinks there's still room left for D-Wave Quantum (QBTS 1.57%) to keep climbing in 2025.
A computer rendering of a quantum computer with fiber optic leads. Image source: Getty Images.
Taking a different approach to quantum computing
The best-known quantum computing companies all use different methods for developing quantum computers and determining the position of qubits in their chips.
Each company will argue in favor of its approach. The truth is, different approaches are best suited for different types of tasks and problems.
Google and many others take a gate-based approach. It's kind of a compromise between natural quantum physics and classical computers, where you set up a detailed program to follow -- with a very different set of commands. This method offers more flexibility and could result in a general-purpose chip that can solve all sorts of problems. A gate-based chip is better suited for more advanced tasks like machine learning or cracking cryptography.
The problem with gate-based quantum chips is noise. Since qubits aren't very stable, subtle interactions with the environment may change their value before a computation is complete, thus producing an error. Stray cosmic radiation can be enough to introduce a significant error, or a photon's worth of light.
Google's big breakthrough was in cutting this error rate down through redundancies in the system as it scales up the number of qubits in its chips. This breakthrough may eventually enable a company to build a chip with enough qubits to solve real-world problems. As of now, however, they are a long way away from commercial viability.
NYSE: QBTS
Key Data Points
D-Wave takes a different approach. It uses a quantum annealing process. You essentially define the problem at hand in the form of peaks and valleys on a map, then let quantum particles settle into this map and find the most energy-efficient combination of several variables. It's like pouring water into a complicated container, or watching the way molten glass cools down into a solid material. It's very different from programming digital computers.
It's great for optimization tasks, as it can provide near-optimal solutions based on a probabilistic model. When a problem is well-defined, a quantum chip that's based on quantum annealing can offer a very efficient solution. It's well suited for applications like logistics or financial modeling, and it already has customers for those types of problems.
Importantly, quantum annealing-based chips aren't as susceptible to errors as gate-based chips. It's a more forgiving process. The computations of annealing-based chips are more statistical than super-accurate, so if the error rate remains low enough, it can still find nearly optimal solutions. It's also worth noting that since quantum annealing chips are designed for specific tasks, they don't require the larger scale of gate-based chips. This reduces the number of errors in the first place.
As a result, D-Wave already has dozens of customers across multiple industries using its chips to solve challenging problems not suited for classic computers. That puts it in a good position to keep advancing its technology and remain a leader in its chosen form of quantum computing.
A long-term bet
To be sure, an investment in D-Wave, or any quantum computing stock for that matter, is a big bet on the future of computing. D-Wave, however, is well-positioned to stick around for a long time despite the immense competition in the space. Not only is it competing with pure-play quantum computing companies, but massive tech companies like Alphabet are also heavily investing in the space.
As mentioned, the company has several customers and generates meaningful revenue from sales of quantum computing systems. Management expects to report a 120% year-over-year increase in bookings for 2024. That sales growth supports continued investments in building bigger and better systems for new applications.
D-Wave's cash position was bolstered in December when the company sold $175 million of stock on the open market. Management was smart to take advantage of the spike in its stock price to raise cash, extending its cash runway, because the business is still not profitable. It's burning about $60 million in cash per year due to the significant amount of research and development and other operating expenses.
The company is now in a position to increase spending on sales and marketing, or research and development. The former could pay off in the near term, while the latter could help it sustain long-term advantages. With immediate applications for its quantum chips, it's worth taking the dual approach to growth.
Analysts currently expect 2025 earnings results similar to 2024, indicating an investment year for the business. And those investments are expected to result in meaningful improvements in loss per share in 2026, according to Wall Street. However, strong revenue growth in 2025 could propel the stock higher during the year, perhaps as much as 45%.
