Quantum computing stocks are some of the hottest stocks on Wall Street right now, even more so than AI stocks. While AI is still playing out, quantum computing stocks could pay off quickly if their technology becomes viable and mainstream, especially if you buy some pure-play start-ups.
One quantum computing stock that soared in May was Rigetti Computing (RGTI 1.08%). It rose over 30% during the month, but was up over 50% at one point. Clearly, there's massive interest in Rigetti Computing's stock, but is it worth buying here?
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Rigetti Computing is up against some stiff competition
Although Rigetti Computing had a great month, it's still down around 40% from its all-time high established in early January. Hype for quantum computing stocks reached an all-time high at the start of the year, so this makes sense, but is there a good reason for it to be down this much?
Rigetti Computing is working on a full-stack solution for quantum computing, which means it will deliver customers an entire quantum computing unit ready for use. Rigetti is competing against multiple other start-ups to bring a viable solution to the market, but it's also competing against behemoths in the space, like Microsoft (MSFT 0.70%) and Alphabet (GOOG +0.31%) (GOOGL +0.40%). Everyone is racing to solve the same problem: errors.
NASDAQ: RGTI
Key Data Points
Quantum computing is different than traditional computing. While traditional computing utilizes bits (a 0 or a 1) to transmit information, quantum computing uses qubits. Qubits transmit information as a superposition of an atom, which is best described as the probability of being a 0 or a 1. This makes quantum computing ideal for many tasks that aren't linear calculations, but it also induces some errors. Because qubits don't transmit exactly a 0 or a 1, there is room for interpretation on what answers they give. This is a fundamental problem with quantum computing, and each competitor is trying different ways to solve this issue.
Rigetti has developed several chip architectures to reduce errors and currently has about 99% fidelity, which is comparable to most companies competing in this realm. In 2025, it plans to release a four-chip, 36-qubit system that may provide an actual use case in the real world, although widespread quantum computing use is still years away.
Rigetti Computing projects that before 2030, the market opportunity for quantum computing will be only $1 billion to $2 billion, mainly driven by various public companies and government research labs. After 2030, it sees demand really picking up, increasing to a $15 billion to $30 billion market opportunity by 2040. This is a long way out, and the question remains: Is it too far out to be seriously investing in Rigetti Computing?
Rigetti Computing is a high-risk, high-reward stock
Rigetti Computing's stock already has a fair bit of success priced into it. The company trades at a $3.5 billion valuation despite only generating around $9.2 million in contracts. Rigetti is also deeply unprofitable and recently agreed to sell up to $350 million worth of new shares to increase its cash pile and continue its research and development.
This shouldn't surprise anyone, but it dilutes existing shareholders by flooding the market with new shares. This isn't the first time Rigetti has done this, and it won't be the last, and investors need to be prepared for more events like this.
Furthermore, if Rigetti loses the quantum computing arms race to another competitor, its stock will become worthless.
While nobody wants to see an investment go to $0, it's the reality with some of these quantum computing start-ups. That's why I prefer to invest in some of the larger players also competing in the quantum computing arms race, as there's a base business to fall back on if they lose the race.
Rigetti Computing isn't a bad stock by any means; it's just a high-risk one. If you want to own shares, then I'd suggest a smaller position size, as that will protect you from it significantly harming your portfolio should it fail. But even a small position size can grow to a massive one if the stock takes off. I'm unsure if Rigetti Computing will be that company, but we won't know the results for a few more years, so I'll probably avoid the stock for now.
