Rigetti Computing (RGTI +0.15%) has been one of the hottest stocks on Wall Street, as it's a leader in the quantum computing space. However, these stocks have grown incredibly volatile over the past two months, with multiple days of them rising or falling by double-digits. Quantum computing investing isn't for the faint of heart, as there is significant investment risk in this sector. However, there is also a potentially massive market, which draws investors to this sector like a gold rush.
What happens to Rigetti's stock over the next few weeks is inconsequential, as having a long-term investing mindset is critical when picking stocks in the quantum computing sector. Investors should be focused on where Rigetti Computing will be in five years, and that should drive investment decisions today.
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Commercially viable quantum computing is projected to emerge around 2030
Nearly all of the quantum computing companies agree that 2030 will be a key year for the industry, as that's when they think commercially viable quantum computers will be available on a mass scale. This bodes well for Rigetti Computing, but the problem is that it isn't alone in this space.
There are several other pure-play quantum computing stocks that have the task of achieving quantum computing superiority or watch their stocks go to $0. Rigetti could be one of these companies, which makes it a high-risk, high-reward investment option. But all of these pure plays also have their work cut out for them.
Alongside these smaller companies are legacy tech players like Alphabet (GOOG 0.87%) (GOOGL 0.75%) and Microsoft (MSFT 0.43%) that have nearly unlimited resources to spend on developing quantum computing. Most quantum computing companies have cash balances between $1 billion and $2 billion to fund their operations for a few years as quantum computing strives toward mainstream acceptance. Microsoft and Alphabet don't have that problem, as they have viable businesses that can fund their quantum computing endeavors. If the quantum computing arms race turns into a spending war versus an innovation one, these two will easily be able to crush the competition, causing an issue for Rigetti.
NASDAQ: RGTI
Key Data Points
However, Rigetti Computing has already established itself as a top option in the space.
Recently, it announced the sale of two of its Novera quantum computing systems, which have four computers with nine qubits each. While the sale price only totaled $5.7 million combined, it shows that Rigetti has led the technology as early adopters and researchers chose its product over multiple other options. Time will tell if this is a real advantage or just a one-off sale, but it showcases that Rigetti could be a leader in this space.
If Rigetti beats all of the competition and emerges as the top option in five years from now, what kind of growth can investors expect from the stock price?
Rigetti Computing would put up impressive returns if it wins the race
Rigetti Computing expects a $15 billion to $30 billion annual market to emerge between 2030 and 2040. If we use the $15 billion annual market by 2030 as a baseline and assume that Rigetti can capture 50% of it, that would indicate it could produce $7.5 billion in sales. If it can generate a 30% profit margin and trade at 40 times earnings, that would price Rigetti's stock as a $90 billion business.
At its current $13 billion valuation, that indicates the stock could 7x over the next five years. Returns like that would make any investor happy, but it requires a lot of assumptions:
- Rigetti Computing must develop commercially viable technology.
- Quantum computing must be accepted by the industry.
- Rigetti must beat all others to the punch.
- Rigetti must capture a huge chunk of the potential market opportunity.
- Rigetti has to sell its systems profitably.
All of these factors (and likely many more) are impossible to predict for the next years. There is still too little separation in this industry for me to invest, and even if the upside is there, there's no guarantee that Rigetti will be able to capture it all. Rigetti could be a $90 billion stock as easily as it could be a $0 stock. This worries me as an investor, so I'm willing to sit tight and be patient until more clarity comes to the quantum computing industry.
