While artificial intelligence (AI) has been the buzz of Wall Street over the last two years, it's not the only trend responsible for lifting the market's major stock indexes to new heights. Investor hype surrounding quantum computing deserves its fair share of credit.
Investors who had the foresight and luck to invest in pure-play quantum computing leaders IonQ (IONQ +0.68%), Rigetti Computing (RGTI +1.21%), and D-Wave Quantum (QBTS -0.59%) in mid-July 2024 are sitting on potentially life-altering gains. Shares of IonQ have more than quadrupled, while shares of Rigetti and D-Wave have skyrocketed by nearly 1,200% and 1,500%, respectively.
Professional and everyday investors are excited about the real-world applications of quantum computers, which include dramatically accelerating the learning curve for AI-driven large language models.
Image source: Getty Images.
But this next-big-thing technology may not be all that it's cracked up to be -- at least according to the individuals who know IonQ, Rigetti Computing, and D-Wave Quantum best.
Quantum computing stock insiders are sending a clear message
Although Wall Street analysts spend their time specializing in sectors, industries, and trends, no one knows IonQ, Rigetti, and D-Wave better than their insiders.
An "insider" is a high-ranking executive, board member, or beneficial owner of at least 10% of a company's outstanding shares who may possess non-public information. Regulators require that insiders report trades in their company's stock (including the exercising of option contracts) via Form 4 no later than two business days after a transaction. This prevents insiders from taking advantage of the system and allows investors a transparent look at what the most in-the-know investors have been up to.
NYSE: IONQ
Key Data Points
According to aggregated Form 4 filings over the last five years for the three most prominent quantum computing stocks, insiders have been decisive sellers:
- IonQ: $576.5 million in net selling by insiders
- D-Wave Quantum: $331.3 million in net selling by insiders
- Rigetti Computing: $80.4 million in net selling by insiders
Collectively, insiders at this pure-play trio have sold just over $988 million of their respective companies' stock since mid-July 2021.
The asterisk that can be added to this insider-selling shockwave is that not all selling is inherently bad news. Given that most executives and board members are compensated in stock and/or options, some selling is required to cover federal and/or state tax liability. There are several reasons for insiders to sell, and they aren't all nefarious.
NYSE: QBTS
Key Data Points
On the other hand, there's only one reason why insiders buy shares of their own company: the expectation that they'll appreciate. Over the trailing five-year period, insider purchases have been few and far between:
- IonQ: $3,349,040 in insider purchases
- D-Wave: $309,080 in insider purchases
- Rigetti: $625,000 in insider purchases
If insiders aren't buying, there may be a logical reason (or two) why.
For starters, quantum computing stock valuations are otherworldly. No company at the forefront of a next-big-thing technology has ever sustained a price-to-sales (P/S) ratio above 30. Quantum computing pure-play stocks have trailing 12-month P/S ratios ranging from 60 to 459!
Every game-changing technological innovation for the last three decades has also endured a bubble-bursting event early in its expansion. While quantum computing hype is real, broad-based adoption and enterprise optimization are many, many years from becoming a reality.
