There are pockets of the market that have soared over the past several years, and quantum computing stocks are some of the most high-flying. Investors are excited about the possibility of computers that are so advanced they can help create new materials, discover new drugs, and make artificial intelligence models even smarter.
Among the most popular quantum computing stocks is Rigetti Computing (RGTI +0.68%), which develops hardware and software in this space, and whose share price has increased by 484% over the past year.
The stock has pulled back recently as investors have become a bit more cautious about more speculative investments, which makes it a good time to consider where Rigetti could be in five years. Here's where the company might be headed.
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Why some investors are betting on Rigetti
Before we can attempt to predict where Rigetti might end up in the coming years, it's essential to understand why investors have been so enthusiastic about this company. Rigetti is making progress in a quantum computing market that could be sizable, reaching $72 billion by 2035.
Rigetti differentiates itself in the quantum computing market by providing tech companies a full-stack quantum computing offering, including hardware and software. This includes everything from designing and manufacturing processors to infrastructure and software, enabling tech companies to have an end-to-end quantum computing product.
Microsoft and Amazon already offer some of Rigetti's quantum computing services to their customers, and Nvidia is collaborating with Rigetti on hybrid computing systems (in which traditional computers and quantum computers work together).
Having established early inroads with these leading tech companies is a positive sign for Rigetti. With the company offering a comprehensive quantum computing solution, this could be an advantage over competitors in the coming years.
NASDAQ: RGTI
Key Data Points
Where could Rigetti be in five years?
I've tried to give Rigetti a fair shake in the above section, highlighting some of the reasons why investors are optimistic about the company's future. However, it's now time to ground those expectations in the reality of Rigetti's financial performance, or lack thereof.
Rigetti's management shed some light on where it's headed when CEO Subodh Kulkarni said in the first-quarter earnings call that
Really, the goal should be to get a quantum computer to Narrow Quantum Advantage. And that's really when commercial sales and sales in general start making sense. And we are talking at least three years from now, maybe four to five years from now.
Did you catch that? Rigetti's leadership doesn't expect its own technology to have meaningful commercial sales until three to five years from now. That's notable, especially considering that the company's revenue declined 18% in Q3 to $1.9 million. Hats off to Rigetti's leadership for being forthcoming about how long it will take significant revenue to arrive.
At the same time that Rigetti is struggling with revenue growth, its costs are also rising. Rigetti's operating expenses rose 13% to nearly $21 million in Q3.
All of this means that Rigetti will continue to operate at a loss for many more years before the company even begins to generate significant sales. And even then, there's no guarantee that profits will follow.
Should you buy Rigetti stock?
I don't think buying Rigetti stock is a good idea right now, considering revenue is declining and isn't expected to be significant for many more years, and because of the company's rising costs.
Furthermore, Rigetti's stock is expensive, with a price-to-sales (P/S) ratio exceeding 1,000. That's astronomically high when you consider the average P/S ratio for the tech sector is only 9.
That means investors buying Rigetti stock now are significantly overpaying for a company in which meaningful revenue is still years away. Investors should instead keep a close eye on the company's developments -- and the broader quantum computing market in general -- for signs of significant growth if and when it comes.
