Quantum computing is a subset of computer science that aims to revolutionize the power of computers by replacing the traditional bit (which can be only in one of two states) with the qubit, which can be in multiple states simultaneously. The science is tricky. But if it works, it could transform the economy by allowing companies to quickly solve problems that would take millions of years for today's machines.
Alphabet's Google optimistically believes that commercially viable quantum computing applications could be available within five years. And it could take decades longer for the technology to break into the mainstream.
Yet, that isn't stopping early movers like Rigetti Computing (RGTI +0.09%) and D-Wave Quantum (QBTS +1.04%) from jumping headfirst into the opportunity. Let's explore some reasons why these stocks belong on your investment watchlist, even if you decide it's too early to buy.
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Rigetti Computing
A rising tide lifts all boats. But with shares up by an impressive 156% so far this year, Rigetti Computing is attracting particular attention. It isn't hard to see why. The company stands out because of its pick-and-shovel business model and vertical integration efforts. Growing government support could be the icing on the cake for potential investors.
Instead of using quantum computing to generate revenue directly, Rigetti Computing is offering the enabling infrastructure that other enterprises will need to use the technology. This is similar to the role Nvidia plays, selling chips for the generative artificial intelligence (AI) industry.
NASDAQ: RGTI
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However, unlike Nvidia, which specializes in designing and marketing its hardware, Rigetti creates its own chips at its fabrication facility, Fab-1, located in Fremont, California. This vertical integration gives Rigetti immense control over its supply chain while also reducing its reliance on foreign partners as it pioneers this sensitive technology.
Unsurprisingly, Rigetti's made-in-America approach may have attracted the attention of the Trump administration, which sees quantum computing as a potential strategic advantage over geopolitical rivals like China. In October, the White House denied plans that it was looking to purchase a stake in Rigetti and other quantum stocks. But support can come through other means, such as the Defense Advanced Research Projects Agency (DARPA), which gave Rigetti an $8.6 million grant in 2020.
D-Wave Quantum
If Rigetti's growth this year looks impressive, D-Wave Quantum's is downright explosive. A 293% year-to-date gain caps off a rally that has seen shares soar a mind-blowing 3,200% over the past 12 months. While most of this can be credited to industrywide hype, D-Wave also enjoys some company-specific catalysts worth paying attention to as well.
Unlike Rigetti and others, which pursue general-purpose quantum computing, D-Wave has focused on a technology called quantum annealing, designed for optimization -- finding the lowest-energy solution to a problem. This may have natural use cases in applications such as logistics (where companies want to find the lowest-cost routes to deliver packages) and possibly even generative AI, where it could help make training large language models (LLMs) more efficient.
NYSE: QBTS
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D-Wave has made early strides in commercializing its technology, selling its Advantage quantum annealing devices to research institutions. Second-quarter revenue jumped by an impressive 42% year over year to $3.1 million. That said, investors should remember that this is a highly speculative, early-stage company. Operating losses stand at $26.5 million, and with widespread commercial viability years away, investors shouldn't expect D-Wave to scale into profitability any time soon.
Is it too early to bet on quantum?
While Rigetti Computing and D-Wave Quantum boast attractive picks-and-shovels takes on the quantum computing industry, investors probably shouldn't be in a hurry to buy. It could be years before the technology is commercially viable. And in the meantime, both companies are burning through boatloads of cash on research as they seek to stay competitive.
Furthermore, with price-to-sales (P/S) multiples of 1,110 and 335, respectively, shares in Rigetti and D-Wave are very expensive considering the long-term challenges both companies face.
