The most popular growth stock bought by Hargreaves Lansdown customers last week was MicroStrategy. In second and third place were Nvidia and Tesla, respectively. No surprises there then.
However, the fourth most bought share was perhaps a little more eye-raising. It was Rigetti Computing (NASDAQ: RGTI), a relatively obscure quantum computing start-up whose shares are up by a mind-boggling 1,768% in just six months.
Could this $17 stock make me rich by investing in it today? Here’s my take.
The next big thing, possibly
Quantum computing has captivated investors’ imaginations recently. This comes after Google released news last month of a new quantum chip, called Willow, which the tech firm said “paves the way to a useful, large-scale quantum computer“.
A quantum computer harnesses quantum mechanics — the bizarre behaviour of subatomic particles — to solve problems much faster than traditional computers.
For example, Google claimed Willow solved in five minutes a computational problem that would take the world’s fastest supercomputers 10,000,000,000,000,000,000,000,000 years to finish. That’s more than the age of the universe!
The industry remains primarily in the research and development (R&D) stage, with quantum computers still very prone to errors. However, analysts at McKinsey see it eventually adding $1.3trn in value to the global economy by 2035.
Capital-intensive industry
Rigetti is a quantum computing company that builds hardware and operates a platform called Quantum Cloud Services. Hence the investor enthusiasm lately.
Digging into the firm though, this is where the excitement stops for me. That’s because Rigetti only reported $2.4m in revenue for Q3, which was actually down 23% year on year. For all of 2024, analysts expect the firm to generate revenue of around $11m, representing an 8% decline.
However, as the business scales, the top line is forecast to rise 47% to $16m in 2025, then another 121% to $35.4m in 2026. Naturally, the firm isn’t yet profitable and posted an operating loss of $17.3m for Q3.
While it had a seemingly decent cash position of $92.6m in September, I do worry how long that will last before the firm needs to tap shareholders for more money.
After all, R&D costs in this nascent industry are significant. And Rigetti plans to launch a 36-qubit system in mid-2025 and a 100+ qubit system by the end of the year.
Qubits, short for quantum bits, are the fundamental units of information in a quantum computer. Generally, the more qubits a system has, the greater its potential computing power (provided they are stable and not prone to errors).
However, something the firm said in its latest quarter also worries me: “We believe quantum computers capable of addressing real-world problems will require hundreds to thousands of high-performing qubits.”
Hundreds to thousands? That sounds a long way off and will likely need a ton of cash to achieve.
Will I invest?
The company is named after founder Chad Rigetti, a physicist who previously worked on IBM‘s quantum computers. However, he abruptly resigned in December 2022. For a start-up like this, I’d ideally want the founder to be involved.
At $17, the stock is trading at 272 times this year’s forecast sales, meaning the speculative share is extremely overvalued.
Perhaps Rigetti proves to be the next Nvidia-type millionaire-maker. Yet it’s far too risky for me right now.
This post was originally published on Motley Fool
