After the rapid rise of the artificial intelligence (AI) industry, the next hot sector could be quantum computing. Quantum technology holds the potential to transform industries to even greater degrees than AI.
Quantum machines use subatomic particles to perform calculations at speeds impossible for today's computers. This can enable breakthroughs in medicine, energy, manufacturing, and many other industries.
Among the businesses working in the field are pure-play quantum companies Rigetti Computing (RGTI +8.29%) and IonQ (IONQ +15.94%). Both hold the promise of significant business growth as the quantum computer industry evolves.
Read on to learn more about Rigetti and IonQ, and see which one makes for a superior quantum computing investment.
A look at Rigetti Computing
NASDAQ: RGTI
Key Data Points
Rigetti Computing's shares have experienced jaw-dropping performance, rising more than 300% over the past 12 months through Feb. 27. The increase was due primarily to investor optimism for quantum computing's potential.
The company's technology uses superconducting qubits, a more common quantum computing method compared to the newer trapped ion approach used by IonQ. Rigetti also employs solid-state fabrication in constructing quantum machines, which facilitates customer adoption by using existing semiconductor industry standards.
However, Rigetti suffers from the same challenges as every other quantum computing business. Subatomic particles are prone to calculation errors. This means errors must be corrected, limiting the ability of quantum devices to scale up. So while these machines hold tremendous potential, they are not capable of replacing today's computers yet.
Consequently, Rigetti's business performance has been lackluster. In the third quarter, the company reported revenue of $2.4 million, a 23% drop from 2023's $3.1 million. This represents the second consecutive quarter of year-over-year sales declines, which is a concerning trend.
Not only that, Rigetti's Q3 cost of revenue rose 41% year over year to $1.2 million. The combination of declining sales and rising costs resulted in Q3 gross profit falling nearly 50% to $1.2 million, compared to 2023's $2.3 million. As a result, Rigetti suffered a Q3 net loss of $14.8 million.
The case for IonQ
NYSE: IONQ
Key Data Points
IonQ is building networking technology to solve the challenge of scaling up quantum machines. This involves linking multiple quantum computers together, the same approach used in conventional computing to create AI. Based on its business growth, the company's efforts are working, contributing to its stock surging more than 140% over the past year through Feb. 27.
IonQ's 2024 revenue rose an impressive 95% year over year to $43.1 million. This continued a trend of sales growth, with 2023's $22 million representing a 98% increase over 2022.
Revenue is poised to rise further, thanks to IonQ's progress in its quantum technology. In February, the company announced that its ion-based tech can now produce vacuums equivalent to that found on the moon.
This allows IonQ's machines to operate at room temperature, making it easier for organizations to adopt the technology. Currently, to reduce calculation errors, many competitors, including Rigetti, keep quantum computers in costly cryogenic chambers at temperatures colder than outer space.
The potency of IonQ's technology is demonstrated by the customers adopting it. These include pharmaceutical company AstraZeneca, aerospace giant Airbus, and the U.S. Air Force Research Lab.
Yet despite the revenue growth, IonQ is not profitable. It exited 2024 with a net loss of $331.6 million, more than double the $157.8 million loss in 2023.
As with Rigetti's situation, rising costs are a concern. So on Feb. 26, IonQ announced it was raising more capital through an equity offering. This contributed to its stock dropping, since it causes dilution to existing shareholders.
Its finances may be a factor in IonQ also introducing a new CEO on Feb. 26, former physicist and board member Niccolo de Masi. He is an experienced CEO, having served in that role at the SPAC that took IonQ public.
Choosing between Rigetti and IonQ
After examining both Rigetti and IonQ, it looks like the better quantum computing investment right now is IonQ. Rigetti's weak sales in the past couple of quarters, compared to IonQ's rapidly rising revenue, is a key factor, indicating the latter's ion-based tech is proving successful at attracting customers.
That said, both IonQ and Rigetti are pricey stocks. Here's a look at each's price-to-sales (P/S) ratio, which measures how much investors are willing to pay for every dollar of revenue.
Data by YCharts.
The P/S multiple for both stocks surged in recent months, and although there's been a drop, this metric is still higher than it's been throughout most of 2024. As a result, it's worth waiting for IonQ shares to drop further before deciding to buy.
Note that investing in either company holds substantial risk, given the current challenges with quantum tech. Only investors with a high risk tolerance should consider purchasing shares.
