In principle, quantum computing is fascinating. This evolving new technology has the potential to handle certain unusual types of computations that are far beyond the capacities of even today's most powerful conventional supercomputers, and the results could lead to revolutionary breakthroughs in a host of existing industries. They could even create new ones.
That potential has been evident in how quantum computing stocks have performed. Optimistic investors have bid up the share prices of a handful of emerging companies that are in the midst of trying to develop useful and commercially viable quantum computers. Among that group is D-Wave Quantum (QBTS +1.01%). It has been on a wild ride, with its share price ranging from $4 to $46 over the past year.
Currently, the stock is hovering near the middle of that range. While some may find it tempting to buy the dip in light of how high D-Wave Quantum has traded in the past, I wouldn't touch the stock with a 10-foot pole.
Image source: Getty Images.
All hat and no cattle
Opinions vary widely as to how large the quantum computing market could eventually become, especially given how nascent the technology is. At this point, quantum computers are primarily being used for research, in part because they are too error-prone to be useful for commercial purposes. That said, research from McKinsey & Company forecasts that the industry will be worth at $100 billion annually by 2035.
There are an array of fundamentally different ways to create a quantum computer, and many of those differences relate to the methods by which the qubits that sit at the heart of the machines are created. But those aren't the only variants. D-Wave Quantum has been taking an unusual approach to the technology called quantum annealing -- a method that doesn't aim to deliver perfectly optimal solutions, but rather solutions that are extremely close to optimal. There are many categories of complex real-world problems where a solution that is within, say, 1% of optimal would be excellent.
But now, D-Wave Quantum is branching out. It recently bought a rival that is developing gate-model quantum computing systems -- a more widely pursued type. It now intends to develop both types of machines concurrently. Given that each is better suited to different types of applications, the company hopes this strategy will help it capture more market share.
All that said, investors should be wary: D-Wave Quantum's financial results are pretty underwhelming. Wall Street analysts expect the company to report 2025 revenues of just under $40 million, and are forecasting sales of approximately $78 million in 2026.
Meanwhile, International Business Machines' lifetime quantum-related revenues have surpassed $1 billion. Another pure-play competitor, IonQ, is doing more than double D-Wave Quantum's sales annually.
NYSE: QBTS
Key Data Points
Lofty hopes are already baked into the stock price
D-Wave Quantum's current market cap is $9.6 billion, giving it a forward price-to-sales ratio of more than 126. That makes it one of the most expensive stocks on Wall Street.
It's hard to see how the company can justify such a high valuation. Quantum computing technology is still early in its life cycle. Any projections about how the business will grow must rely heavily on conjecture, and there's no knowing how D-Wave will even fare against its competitors in the space, which range from similarly small pure-play upstarts to multitrillion-dollar tech giants.
Perhaps that's why its stock price has traded as low as $4 over the past year. There's not much on the financial side to prop up D-Wave's stock if investors sour on its long-term prospects and story. The stock could be worth a look as a speculative pick if its price continues to fall back toward a somewhat less exuberant valuation, but I won't be buying D-Wave at anywhere near its current share price.
