The fear of missing out It is a powerful force in the financial markets. It’s hard to watch a stock skyrocket and not want to get in on the action. That said, chasing speculative stocks can lead to significant losses because they often lack fundamental backing to justify the gains. Rigetti Computing(NASDAQ:RGTI) is an excellent example of this concept.
The stock has plunged a staggering 42% in the past 30 days as investors take profits and lose interest in its hype-fueled rally. That said, while Rigetti stock is underperforming right now, that doesn’t mean it will always be a loser. Let’s explore what the next five years may hold for the company and the quantum computing industry as a whole.
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A rising tide lifts all boats. And Rigetti’s legendary rally began in late 2024, when the cloud computing leader Google launched Willow, a next-generation quantum computing chip capable of correcting its own errors. Many investors believe this could pave the way for the creation of commercially viable quantum computers, and capital quickly flowed into the industry. Over the next few months, quantum computing startups (including Rigetti) began reporting early hardware sales, sparking a speculative frenzy.
At first glance, this may seem like quantum computing’s ChatGPT moment. And if the industry were to take off, Rigetti Computing would play an important role picks and shovels paper similar to NVIDIA – supply the quantum chips, processors and hardware that other companies need to serve their enterprise customers. But the situation is actually very different.
While generative AI (artificial intelligence) can be justified with viable and popular consumer-oriented products (such as ChatGPT and Gemini), quantum computing is still in a very nascent stage. In the third quarter, Rigetti reported just $1.95 million in sales. That’s down 18% year over year. And it suggests that the company’s customers are likely purchasing its hardware for testing and experimentation rather than large-scale commercial use cases.
The company also has no clear path to profitability. It posted a third-quarter operating loss of $20.5 million, with most of the business exits going to the research and development He needed to improve his technology.
When will quantum computing go from a speculative money pit to a transformative technology that could revolutionize everything from materials science to drug discovery? That’s the million dollar question. A 2023 report from McKinsey & Company suggests that could happen around 2040. Google and IBM They are more optimistic and hope to have commercially viable quantum computers within five years.
However, even when these devices are technically capable of solving useful and commercially relevant problems, it may take many more years before they become the basis of a sustainable business model due to issues such as cost, reliability and even government regulation.
Even in the best-case scenario, a pioneering company like Rigetti Computing could face years, if not decades, of losses before investors begin to see a glimmer of profits. While the company has approximately $450 million in cash and short-term investments in its balancean impressive amount. However, even this may not be enough to cross the finish line, and management may have to turn to other sources of capital, such as equity dilution, to raise the money needed to maintain operations.
For unprofitable companies, creating and selling more units of shares is a much safer alternative to going into debt. However, it can hurt long-term investors by reducing their claims on the company’s future earnings.
Rigetti’s huge cash pile will likely have a stabilizing effect on the stock’s performance and prevent it from falling too much in the coming years. Despite the weak performance, the company is not at any immediate risk of bankruptcy or being unable to fund its research. That said, until quantum computing shows real signs of viability, Rigetti stock seems too speculative for investors who want to sleep soundly at night.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool positions and recommends Alphabet and International Business Machines. The Motley Fool has a disclosure policy.
Where Will Rigetti Computing Stock Be in 5 Years? was originally published by The Motley Fool
