Understanding the Volatility of Quantum Computing Stocks
Quantum computing stocks have a reputation for being highly volatile, and their popularity can wax and wane in the market. The main reason for this instability is that the technology is still in its infancy, and its significant impact on industries is not expected until around 2030. This makes investing in quantum computing stocks similar to investing in biotech companies that are still in the clinical trial phase – they may generate substantial returns in the future, but for now, they are often unprofitable and burning through cash.
Evaluating the Market Sentiment
When the market becomes overly bearish on a quantum computing stock, it can be due to several factors. The broader industry might be out of favor, the company could be struggling to develop viable quantum computing technology, or the stock may have sold off too much due to investor impatience. If a stock falls into the last category, it might be worth considering, as it could be undervalued and offer a buying opportunity.
Rigetti Computing: A Quantum Computing Pure-Play Stock
One of the well-known quantum computing pure-play stocks is Rigetti Computing. With a market capitalization of $8 billion, although it has fallen over 50% from its all-time high, the question arises whether this presents a buying opportunity or if there are valid reasons for its decline. Rigetti is pursuing the superconducting approach, the most common technique in quantum computing, which, although not the most accurate, boasts the best processing speeds. This long-term play in the quantum computing realm puts Rigetti in competition with tech giants like Alphabet, Microsoft, and International Business Machines, all of which are also deploying superconducting technology.
Competitive Landscape and Financial Health
Rigetti faces significant competition, and its resources are limited compared to its competitors. In the third quarter, it reported revenue of $1.9 million and a $21 million operating loss. With about $600 million in cash, Rigetti has enough to survive for a while, but its financials are dwarfed by those of its competitors. This disparity could pose a considerable challenge, especially if quantum computing becomes an industry where the company with the deepest pockets has the advantage.
Evaluating Rigetti as an Investment Opportunity
While the entire quantum computing sector is down from its highs, Rigetti is one of the most significant losers. This drop might be an overreaction to its challenges, but when investing in this sector, it’s prudent to consider leaders with substantial resources or companies exploring alternative technologies. Spreading investments across different company sizes and computing techniques can mitigate risks, as it’s uncertain who will emerge as the winner or what the technology will look like in the future. Rigetti, however, doesn’t fit into this diversified strategy, making it less attractive for investment.
Alternative Investment Strategies
For those interested in quantum computing, creating a diversified portfolio that includes large tech companies involved in the space, as well as smaller pure plays, could be a smarter move. Several quantum ETFs offer this kind of exposure, providing a way to invest in the potential of quantum computing without overexposing oneself to the volatility of individual stocks like Rigetti. While Rigetti could still succeed, its challenges and the competitive landscape suggest that there are more promising investments in the quantum computing sector.
