While it was far from the only quantum computing company stock to see red in November, D-Wave Quantum's (QBTS +5.09%) 38.8% drop was one of the worst -- only Rigetti Computing's shares fell further.
Thankfully for investors, shares of D-Wave have recovered somewhat in the first few days of December, but they remain more than 36.5% off their October high. Here's what's going on and what might be in store for the quantum company.
November was a rough month for the whole market
Concerns about an artificial intelligence (AI) bubble gripped the market for much of November as shareholders worried whether the technology's real-world value could justify the enormous capital being deployed to power AI.
NYSE: QBTS
Key Data Points
Investors want to see the math add up and are questioning how much premium they're willing to pay for the promise of future returns. While D-Wave isn't an AI stock per se, it has become caught up in the same hype cycle. And where real AI products are used in the real world, quantum computing is still in its early stages of development. And where AI companies have substantial revenues, most quantum computing companies have little to no sales to speak of, D-Wave included.
As sentiment shifted from greed to fear, D-Wave investors began jumping ship, wondering whether a company generating tens of millions of dollars annually was really worth $10 billion.
A Nobel Prize winner renews investment hopes
The last few days have seen a major reversal as investors anticipate rate cutting from the Federal Reserve, and rumors of direct government investment are renewed. In October, a report claimed that the Trump administration was considering direct investments in quantum computing companies. Administration officials quickly denied the report.
This week, however, a Bloomberg News interview with one of this year's Nobel Prize winners in physics breathed new life into the rumors. The researcher, who has visited the White House several times to speak with officials, said that the administration is deeply concerned over China's progress in quantum technology and that the White House is "now moving on to quantum," looking to ensure the industry has adequate support.
Image source: Getty Images.
While this could mean direct investment, it could mean many things, and investors trading on the news are speculating. I believe that is exactly what is driving most of the investment in D-Wave at this point: speculation. The reality is that D-Wave has a nearly $9 billion market capitalization, despite sales of just $24 million over the last 12 months -- a period during which it also reported a nearly $400 million net loss.
And while future growth can sometimes justify numbers like that, there are far too many barriers in the way for me to recommend D-Wave at this valuation -- not the least of which is that we still don't know if commercially viable quantum computing is even possible.
