D-Wave Quantum (QBTS +1.01%), a provider of quantum computing services, went public by merging with a special purpose acquisition company (SPAC) on Aug. 8, 2022. Its stock opened at $10, was nearly delisted when it sank below $1 in 2023, but now trades at about $12.
D-Wave is still a divisive stock. The bulls are impressed by the potential uses of its quantum annealing tools in mainstream computing applications. Still, the bears claim it's grossly overvalued and can't justify its sky-high valuations. So is this volatile stock worth buying right now?
Image source: Getty Images.
What sets quantum computers apart from classical computers?
Classical computers, including modern CPUs and GPUs, still store their data in binary bits, consisting of zeros and ones. Quantum computers store those zeros and ones simultaneously in qubits, which allows them to process certain computing tasks at a much faster rate.
However, quantum computers are also larger, pricier, and less power-efficient than classical computers. They also tend to output a higher percentage of errors. That's why they're still primarily used for niche research projects at government agencies and universities.
To make those systems more accessible for mainstream computing applications, many quantum computing companies are using different technologies to make those quantum processing units (QPUs) smaller, cheaper, more scalable, and more accurate.
What sets D-Wave apart from other quantum computing companies?
D-Wave builds its quantum systems with loops of superconducting metal, called "superconducting flux qubits," which allow electric currents to flow simultaneously in both clockwise and counterclockwise directions to achieve a quantum state.
NYSE: QBTS
Key Data Points
That sets it apart from companies like IonQ (IONQ +2.39%), which trap ions in a quantum state with precise lasers; and IBM (IBM +0.58%), which drives electrons through similar superconducting loops but only spins them in a single direction. However, D-Wave's systems still require cryogenic refrigeration, similar to IBM's electron-driven systems. IonQ's systems don't need to be cryogenically chilled, but their lasers require constant maintenance.
D-Wave designs its own QPUs and Advantage quantum systems, and it remotely serves up its quantum computing power through its cloud-based Leap platform. It mainly provides quantum annealing services, which can be used to streamline workflows, supply chains, and logistics networks. It accomplishes this by running those processes through its quantum systems and identifying the ones that consume the least power as the most efficient.
That approach makes it a more practical fit for mainstream companies, and it already serves more than 100 customers -- including Deloitte, Mastercard, Volkswagen, Lockheed Martin, and Accenture.
How fast is D-Wave growing?
Yet D-Wave isn't generating much revenue from most of those customers, as they're mainly signed up for its low-revenue pilot and research programs on its Leap platform, rather than using its quantum annealing technologies to overhaul their entire businesses.
As a result, it still generates most of its revenue by selling its Advantage quantum systems -- but those sales are infrequent, unpredictable, and have long upgrade cycles. As the following chart illustrates, that's why D-Wave's revenue growth flatlined in 2024. However, its revenue is expected to nearly triple in 2025 as it begins selling its new Advantage2 quantum systems, which can solve 3D lattice problems 25,000 times faster than its first-generation Advantage system while consuming even less power.
|
Metric |
2022 |
2023 |
2024 |
2025 (Estimate) |
|---|---|---|---|---|
|
Revenue |
$7.2 million |
$8.8 million |
$8.8 million |
$25.4 million |
|
Adjusted EBITDA |
($48.0 million) |
($54.3 million) |
($56.0 million) |
($70.6 million) |
|
Net Income |
($51.5 million) |
($82.7 million) |
($143.9 million) |
($338.9 million) |
Data source: Marketscreener.
Unfortunately, D-Wave's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to stay negative this year as it ramps up its spending on its new systems. On a generally accepted accounting principles (GAAP) basis, its net loss is expected to more than double.
By 2027, analysts expect D-Wave's revenue to rise to $75 million, its adjusted EBITDA to improve to negative $64 million, and its net loss to narrow to $115 million. That growth should be fueled by the expansion of its Leap platform, the conversion of its pilot programs into higher-value partnerships, and its sales of new systems (which cost $20-$40 million each).
It should still have plenty of room to grow over the next decade. Dataintelo predicts the quantum annealing market will expand at a CAGR of 15.7% from 2023 to 2032. Grand View Research expects the broader quantum computing market to grow at a CAGR of 20.5% from 2025 to 2030 as it gains more momentum among mainstream companies.
Is it the right stock to buy right now?
D-Wave's future looks bright, but its biggest problem is its valuation. With an enterprise value of $9.9 billion, it's already valued at 132 times its projected 2027 sales. By comparison, IonQ -- which is expected to generate $312 million in revenue by 2027 -- trades at 55 times that estimate. Therefore, D-Wave's stock could be cut in half and still be considered expensive relative to its peers in quantum computing. I'd keep an eye on it for now, but I wouldn't rush to buy it.
