Quantum computing stocks such as D-Wave Quantum (QBTS 5.32%) have been all the rage this year, with many seeing their stock prices soar. Investors are viewing the sector in a similar light to the early days of artificial intelligence. If quantum computing companies are able to commercialize quantum computers that can ideally process much more complex calculations than computers today, you may one day find them in every home and office in America and all over the world.
Stocks can embark on stock splits for all sorts of different reasons. They can happen to successful stocks and underperforming stocks. Is D-Wave Quantum next?
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What is a stock split?
Before looking at whether D-Wave could be due for a stock split, it's important for investors to understand what stock splits are and why companies may embark on them.
Stock splits are simply a way for a company to lower its share price and increase the number of outstanding shares, or vice versa through a reverse stock split. Stock splits and reverse stock splits do not change a company's market capitalization and, therefore, will not change an investor's equity position if they held shares before one occurs.
Let's do a quick example with one of the world's largest publicly traded companies: Tesla. Let's say you own 100 shares of Tesla, which currently trades slightly under $313 per share, making your total equity position slightly under $31,300. If Tesla were to conduct a three-for-one stock split, you would take the 100 shares and multiply by three, resulting in 300 shares.
Then, to calculate the new share price, you would take the equity position ($31,300) and divide by 300, which equals $104.33 per share. Notice that your number of Tesla shares tripled, while the share price was divided by three. But you still have the same total equity value, and the market cap is the same, so there was no dilution.
A company might conduct a stock split or a reverse split for several reasons. A frequent example occurs when a company's stock price drops too low. The Nasdaq Composite and New York Stock Exchange require companies that trade on their exchanges to maintain at least a $1 share price for at least 30 business days. If a company fails to meet this requirement, it may eventually be delisted. A reverse stock split can help resolve this conundrum.
Companies that are extremely successful and see their stock prices rise into the hundreds or even the thousands will also use stock splits to bring down their share price and make the stock more attainable for investors. Even though investors can now buy fractional shares, they may be less likely to purchase shares with such a high price tag. A stock split lowers the share price and increases the share count, potentially boosting liquidity.
Is D-Wave Next?
While basic computers use bits to process data, which are the smallest units of digital information, quantum computers use qubits to process data much faster and perform much more complex calculations in a much more efficient manner than computers and humans. If executed correctly, many believe that quantum computers will be able to make huge advancements in nearly every sector, including science, medicine, and finance, to name a few.
D-Wave is one company that has made good progress. The company's latest model, released earlier this year, features 4,400 qubits and robust qubit coherence, which allows qubits to stay in the quantum state for longer and solve calculations faster and with more accuracy. In fact, D-Wave's latest quantum technology has achieved a 75% reduction in noise, which can throw off qubits. The less noise, the higher the accuracy.
Due to this success and other signs of general progress in the quantum computing industry, D-Wave has seen its stock soar by over 1,281% in the last year, so investors have crushed it. The stock trades at $16.79 per share and has a market cap of $5.25 billion. Furthermore, D-Wave has a high public float and can be purchased on most common brokerages, such as Robinhood.
D-Wave also recently completed a $400 million at-the-market equity offering, so I don't see any indication that the company will conduct a reverse stock split anytime soon. D-Wave is in compliance with the New York Stock Exchange's listing requirements and has a liquid share base.
