The artificial intelligence (AI) market expanded rapidly in recent years as new generative AI platforms like OpenAI's ChatGPT changed how companies process data, automate tasks, and serve their customers. The biggest winner in that AI boom was Nvidia (NVDA 0.81%), the world's leading producer of the GPUs that handled those complex tasks.
Unlike CPUs, which process a single piece of data at a time, GPUs can process a wide range of integers and floating point numbers simultaneously. That key difference makes high-end GPUs much better picks and shovels for the AI gold rush than stand-alone CPUs.
Image source: Getty Images.
But as the high-growth data center GPU market gradually matures, some investors are looking toward quantum computers as the next big technological upgrade for tackling AI tasks. Unlike CPUs and GPUs, which use binary logic to store zeros and ones separately, quantum processing units (QPUs) can store them simultaneously in qubits.
Keeping that data in a quantum state allows QPUs to process more data at a much faster rate than CPUs or GPUs. However, QPUs are also much bigger, more expensive, and consume more power than GPUs -- so they're still primarily used for niche research purposes instead of mainstream computing applications.
Yet high expectations for quantum computers, especially for AI applications, lit a fire under many of the nascent market's top stocks. One of those stocks was Rigetti Computing (RGTI +3.11%), a developer of quantum chips, systems, and cloud-based services.
Over the past 12 months, Rigetti's stock skyrocketed about 1,460%, as Nvidia's stock rose less than 50%. But can Rigetti maintain that momentum and stay ahead of Nvidia for the foreseeable future?
Rigetti's valuations are getting overheated
Rigetti sells modular and nonmodular QPUs. Its modular chips can be chained together to increase the processing power (qubits) of a quantum system. It also builds its own quantum systems and provides a cloud-based platform for building quantum apps. That diversification makes it a one-stop shop for quantum computing.
Rigetti recently launched a 9-qubit QPU for commercial customers and the 84-qubit Ankaa 3 quantum system for its government and research clients. This year, it plans to launch a new modular system that will connect four of its 9-qubit systems to create a 36-qubit system. Next year, it plans to launch a nonmodular 100-qubit system. It's also working with Nvidia to build hybrid QPU/GPU systems to process AI tasks more efficiently.
NASDAQ: RGTI
Key Data Points
Rigetti's systems aren't as powerful as IBM's market-leading Eagle quantum systems, which generate more than 127 qubits of processing power. However, Rigetti offers more flexible on-premises deployments and pricing plans than IBM. Rigetti is also an attractive option for customers which don't want to lock themselves into IBM's cloud ecosystem.
From 2024 to 2027, analysts expect Rigetti's revenue to grow at a CAGR of 52% from $10.8 million to $37.7 million as it rolls out its new chips and systems. That growth trajectory would be impressive, but it's expected to stay unprofitable for the foreseeable future.
And with a market cap of $5 billion, Rigetti already trades at a whopping 133 times its estimated sales for 2027. That frothy valuation suggests that too much growth is already baked into its current price.
Nvidia still looks reasonably valued
Nvidia generates most of its revenue and growth from its data center GPUs. It controls more than 90% of the data center GPU market, it locks in those customers with its CUDA (Compute Unified Device Architecture) parallel computing platform for writing AI applications, and it remains far ahead of its competitors in terms of raw processing power.
NASDAQ: NVDA
Key Data Points
From fiscal 2025 (which ended this January) to fiscal 2028, analysts expect Nvidia's revenue and EPS to grow at a CAGR of 31% and 29%, respectively. That growth should be fueled by the expansion of the AI market; the rollout of its latest Blackwell GPUs, which are roughly 2.5 times faster than its Hopper GPUs; and fewer restrictions on its sales of lower-end data center GPUs in China.
Nvidia's market cap recently soared past $4.2 trillion -- making it the most valuable company in the world by a wide margin -- and it might initially seem pricey at 21 times this year's sales. But it also trades at just 42 times this year's earnings -- which seems surprisingly reasonable relative to its growth potential.
Nvidia faces some competition from AMD's cheaper data center GPUs, but Nvidia's first-mover advantage, best-in-breed reputation, and CUDA's stickiness should help it maintain its lead. Those strengths should help Nvidia stay at the top AI market for the foreseeable future.
The better buy: Nvidia
Rigetti has a lot of growth potential, but it's trading at meme-stock levels. So if you're looking for a straightforward way to profit from the AI boom, you should simply stick with Nvidia. Rigetti could eventually benefit from the usage of its QPUs in AI applications, but that's still a speculative scenario that can't support its current valuations.
