If you invested in Nvidia stock on Nov. 30, 2022 and held your position until today, then you would be up on your investment by nearly eightfold. Why that date? Because this is the day OpenAI commercially released ChatGPT and spawned the artificial intelligence (AI) revolution.
For the last few years, just about anything touching or referencing AI garnered attention from growth investors. But now that we're a few years into the AI saga, people are beginning to look for more specific opportunities underneath the broader AI umbrella.
For the last several months, quantum computing has burst onto the scene as one of AI's "next big things." And among popular quantum computing stocks is Rigetti Computing (RGTI +1.44%) -- which has seen its shares rise by 521% in just the last six months (at the time of this writing).
As the prospects of quantum computing gain more momentum in the investment world, could Rigetti be on its way to becoming the next Nvidia?
NASDAQ: RGTI
Key Data Points
The quantum computing opportunity is enormous, but...
If you're unfamiliar with quantum computing, it's likely because the technology isn't widely scaled today. Companies such as IonQ, D-Wave Quantum, and of course, Rigetti Computing have emerged at the forefront of the quantum computing movement over the last several months.
Considering the total addressable market for quantum computing is expected to reach $131 billion over the next 15 years, it's understandable why investors would be flocking to these new players disrupting the AI landscape.
While a large market could suggest long-term growth prospects, smart investors understand that these dynamics don't necessarily make it a sound investment opportunity right now.
Image source: Getty Images.
... investing in this pocket of the AI realm could be dicey
The chart illustrates Rigetti Computing's revenue and net loss over the last year. As I alluded to, quantum computing doesn't have many use cases for today's AI applications. This is underscored by Rigetti's paltry $10.8 million in annual sales. While the market size is expected to grow by billions over the coming years, the more subtle theme is that developing quantum computing technology is going to require hefty investments -- another trend that's indicated by Rigetti's soaring losses.
RGTI Revenue (TTM) data by YCharts
Generating $10 million in sales while burning $200 million in capital a year isn't exactly a recipe for growth. This financial profile makes it hard to justify Rigetti's $3 billion market cap.
Could investing in Rigetti Computing today be like catching Nvidia stock in 2022?
It's easy to compare the potential around quantum computing to the bullish narratives that surround AI. The thing is that back in 2022, Nvidia's core AI products and services -- namely its GPUs -- were already being used for a host of other applications. I bring this up to make that point that Nvidia already had an established product-market fit for its chipsets -- management simply realized that GPUs would serve as an integral piece of hardware for developing generative AI; hence the value proposition was already there.
I don't think this necessarily holds true for what Rigetti is trying to achieve in quantum computing. Another way of saying this is that the company's investments in AI infrastructure might never fully pay off. For this reason, I see Rigetti as an extremely speculative stock to own.
To me, the parabolic rise in Rigetti's stock price is rooted more in momentum trading -- a feature often exhibited by meme stocks. As the quantum computing chapter continues to be written, I suspect savvy investors will come to realize that AI's biggest players such as Nvidia, Microsoft, Alphabet, and Amazon already have firm footing in this space -- making it even harder for Rigetti to truly compete in the long run.
Unlike an investment in Nvidia, I see Rigetti's valuation normalizing significantly over the next few years. Hence, I think the stock price could experience a significant drawdown.
Ultimately, I would pass on investing in Rigetti, as I do not see the company as a true pioneer in quantum computing -- certainly not in the same transformative way that Nvidia supercharged the AI movement.
