D-Wave Quantum (QBTS +4.56%) has had an incredible year, as the stock is up around 175%. However, that's nowhere near its peak stock price. Just a few weeks ago, D-Wave was up over 400% for the year, which shows how quickly the stock market has shifted to quantum computing stocks.
But any quantum computing investor must understand that we're still years away from commercially viable quantum computing. This technology isn't expected to see widespread integration until 2030, and it could be years before the market is fully developed. As a result, any short-term price movement is mainly irrelevant, and investors need to have a projection of what the end stock price might be so that they can judge if now is a smart time to buy or not.
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D-Wave Quantum is taking a different approach than its competitors
There isn't a single way to accomplish quantum computing. There are a handful of processes out there that can accomplish the goal, and ensuring that quantum computing investors have bets spread throughout these various techniques is a smart move. D-Wave Quantum utilizes quantum annealing, which isn't meant to be a general-purpose quantum computing technique. This separates it from its pure-play peers like IonQ (IONQ +5.43%) and Rigetti Computing (RGTI +5.11%), as well as the large tech companies like Alphabet (GOOG 0.15%) (GOOGL 0.57%) and Microsoft (MSFT +1.01%).
NYSE: QBTS
Key Data Points
When a company uses a radically different technique in a field like quantum computing, it could either be a stroke of genius or a terrible decision. We're still a long way out from determining which one of these is accurate, but the technology does offer some distinct advantages.
Quantum annealing isn't meant for general-purpose computing; instead, it's suited for optimization problems. This makes it highly applicable for tasks like AI inference, logistics networks, statistical modeling, and weather prediction. Those are some of the initial primary use cases of quantum computing, so D-Wave is addressing some of the primary market immediately by catering its technology to those applications.
But just how big are these markets going to be in 2035?
Estimates vary widely for the quantum computing market opportunity
Because useful quantum computing is still a way out, estimates vary widely about the potential market opportunity. McKinsey & Company projects that the global market for quantum computing could total as much as $97 billion by 2035. That's not an annual market; that's a cumulative market total.
So, with quantum computing starting to become relevant around 2030, investors can estimate about a $15 billion to $20 billion market for quantum computing hardware every year. If make take an extremely bullish assumption that D-Wave can generate $10 billion in annual revenue and produce a 30% profit margin, it would generate $3 billion in revenue. At a 30 times trailing earnings valuation, that's a $90 billion stock. At today's $8.2 billion market cap, its stock price is $23.40. So, if it rose to become a $90 billion company, it would be worth about $257 per share.
However, that assumes that D-Wave's share count stays flat over the next decade, which is unlikely to happen because secondary stock offerings could be a source of funding for the company. If it achieved that growth level, that would still be a 10-bagger in 10 years -- an incredible performance. However, that requires D-Wave to capture a large portion of the market opportunity. The reality is, there's no guarantee that D-Wave will be successful and not get beat out by its competition. I'm skeptical of that, and its stock price could easily be $0 a decade from now.
D-Wave Quantum is just too risky a stock pick for me, and I'd rather invest in some other sure-fire stock picks than take a lottery ticket like D-Wave, especially when the market is rotating out of quantum computing stocks.
