The value of something is simply what others are willing to pay for it. Value stocks represent cash-generating assets that grow slowly over time, while growth stocks promise rapid growth in the future. Lately, the value of future growth has fallen. With rising interest rates, the value of a dollar today becomes more valuable than a promised dollar tomorrow. When it comes to growth stocks, we can categorize them as follows:
- Growth stocks with a track record of significant earnings growth
- Growth stocks without significant income
The second point represents companies that we do not consider investable. In this category we would place the latest quantum computing company to go public, Rigetti Computing (RGTI), which is now publicly traded following its successful merger with a sspecial pgoal aacquisition vsbusiness (after-sales service) called Supernova Partners Acquisition Company II.
About Rigetti Computing Stock
The last time we looked at Rigetti was in an article titled Rigetti Computing Stock: pure play on quantum computing in which we noted 2021 revenue of $5.54 million. It’s a start, but they’ll need to clear $10 million a year before we can consider revenue meaningful, and we’re told that should happen this year with 2022 revenue estimated at $18 million. But they’re not off to a good start with first-quarter 2022 revenue of just $2.1 million, down from $2.36 million a year earlier. The company attributed the decline in revenue to contract timing, which will continue to result in inconsistent quarterly revenue as it expects to continue to generate the majority of development contract revenue for at least the next several years.
To make revenue even more unpredictable, there is customer concentration risk: 83% of Q1 2022 revenue came from three customers (Q1-2021 saw 81% of revenue from two customers).
Like Palantir, Rigetti derives a significant portion of its revenue from contracts with US and foreign governments and government agencies. Around 60% of 2021 revenue came from governments, with that number rising to 76% in the first quarter of 2022.
SPAC Rigetti merged with charged 14.44% fees, leaving the company with proceeds of $225.6 million, a disappointing figure as they expected more than double that amount. As of the first quarter of 2022, Rigetti held approximately $206 million in cash with debt of $32 million. If they burn around $10 million per quarter, then their track is healthy for five years. And with their deadlines slipping, they’ll need all the lead they can get.
The company’s pessimism about achieving quantum greatness is pervasive throughout the latest 10-Q. Due to inflation, labor shortages, supply conditions, and what they perceived as lackluster SPAC supply, the company’s milestones slipped. Rigetti now plans to “introduce a 1000+ qubit system in late 2025 and a 4000+ qubit system in 2027 or later.” We don’t know what impact this will have on the SPAC bridge’s stellar projections of $288 million in revenue by 2025, and the profitability that comes with it, but you can be sure they’ll be spending a lot of money on R&D to bring these systems to market.
And if history repeats itself, then don’t hold your breath. From the horse’s mouth:
In the past, we have failed to achieve publicly announced milestones and we may not achieve projected technology milestones in the future. For example, in 2018 we announced that we planned to build and deploy a 128-qubit system within the next twelve months, but we have not yet built a 128-qubit system.
At least they admit their inability to perform. This low vote of confidence from management, coupled with the risk of revenue concentration, a heavy reliance on government contracts and a lack of meaningful revenue, means this is a quantum computing stock in which we wouldn’t consider investing at any cost.
Investing in quantum computing
Many investors looking for ways to invest in quantum computing assume that there is a winner-takes-all scenario at the end of the rainbow. There are several things quantum computing investors need to consider:
- A number of claims have been made about quantum supremacy that have been debated by the industry. If even the experts can’t decide when a quantum computing company is successful, then the only real indicator – at least for pure-play stocks – would be revenue growth.
- If any of the major tech players working on quantum computing – Google, Amazon, IBM, etc. – reached quantum supremacy, investors might not know how these milestones affect earnings.
- There are dozens of quantum computing startups to consider that are off-limits to retail investors, Quantinuum being one of the most notable names.
The two pure-play quantum stocks right now — IonQ and Rigetti — don’t have significant earnings that demonstrate sufficient traction. Whichever companies, if any, achieve quantum supremacy, it all comes down to building something that customers are willing to pay for beyond just kicking the tires. We wouldn’t buy any quantum computing stock, at any price, unless they manage to generate $10 million in unrelated party revenue per year.
Quantum computing is not an easy thesis for retail investors with only two publicly traded quantum computing stocks – IonQ and Rigetti. As for the former, they have just announced growth in revenue from related party transactions, which we have warned subscribers about. Then there’s D-Wave, a company that has yet to complete its SPAC and doesn’t look very promising even though it does. The next time we look at a quantum computing stock will be if there’s a new entrant, or if any of these three quantum computing OGs manage to hit that magical $10 million revenue watermark. per year.
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