Growth stock Quantum Computing Inc. (NASDAQ:QUBT) is the talk of the town, with its stock price skyrocketing an astonishing 2,654% over the past six months. This meteoric rise has left investors wondering if they’re witnessing the birth of the next big tech giant or if it’s simply a case of FOMO (fear of missing out) driving unsustainable gains.
The quantum buzz
The recent surge in Quantum Computing’s stock price can be attributed to a series of positive developments, arguably some taken out of proportion, culminating in a contract with NASA. In you hadn’t noticed, quantum stocks have been receiving a lot of attention in recent months, partially due to the recent unveiling of Google’s Willow chip, but also things like developments in ion-ion transfer.
On 17 December, 2024, Quantum Computing announced that it had secured a contract with NASA’s Goddard Space Flight Center, sending its shares soaring and compounding gains from earlier in the autumn.
The NASA contract centres around the firm’s Dirac-3 technology, an entropy quantum optimisation machine that could revolutionise advanced imaging and data processing. Specifically, the technology will be applied to tackle the complex ‘phase unwrapping’ problem in interferometric data generated by radar.
In short, this could have various applications for NASA such as Earth observation, climate monitoring, and space exploration. But for Quantum Computing, this collaboration will hopefully demonstrate the superiority of the company’s quantum optimisation machine over traditional algorithms used on classical computers.
Expert caution
Despite the excitement surrounding quantum technologies, investors may want to exercise caution.
Danil Sereda, Investing Group Leader, for Beyond the Wall Investing, warns that the quantum computing space is highly competitive, and only one or two companies are likely to survive in the long run. He cautions against investing broadly in the entire niche without understanding each company’s specific prospects.
Sereda also points out the disconnect between skyrocketing market caps and actual financial performance — it has a price-to-sales ratio of 3,980 times. For instance, Quantum Computing’s market capitalisation has soared to nearly $2bn, despite reporting little revenue and continued losses. The loss-making situation doesn’t look like improving anytime soon.
The bottom line
While Quantum Computing’s recent NASA contract and the resulting stock surge are undoubtedly exciting, investors should approach with caution. The quantum computing sector is still in its infancy, and while the potential is enormous, so are the risks.
With some of the artificial intelligence (AI) excitement running low, retail investors may have turned to quantum technologies as a new frontier for potential growth and innovation. And while I’m personally very excited by developments in quantum computing, I’m also concerned that these astronomical gains may be something of an overreaction, exaggerated by FOMO.
I’m also very aware that if I had invested in the stocks in the ‘quantum watchlist’ I made in September, I’d be a very rich man right now. However, for now at least, I’ll continue to watch from the sidelines. It’s hard to justify the valuations.
