Amazingly, Rigetti Computing (NASDAQ:RGTI) was a penny share trading for $0.84 just one year ago. Now, as I type, it’s at $55, giving the quantum computing firm a $17.5bn market cap.
That’s a mind-boggling 12-month return of 6,410%! Or put another way, someone who invested £1,500 a year ago would now have roughly £100,000.
Earlier this week, the share price soared 25% in a single day. We also learned that UK investors have been piling in, with the stock ranking among the most popular on AJ Bell in recent days.
Positive news
For those unfamiliar, Rigetti is a US company that’s building quantum computers. It designs and manufactures its own superconducting quantum chips, creates the software systems that control them, and offers access through its Quantum Cloud Services platform.
This is a full-stack development approach — from chip design and manufacturing through to cloud delivery. Put simply, Rigetti is attempting to create machines that can solve problems traditional computers can’t, using qubits instead of bits.
Building on years of pioneering work, Rigetti is poised to develop quantum computers that could scale to solve problems of staggering computational complexity at unprecedented speed.
Rigetti Computing
The reason the stock surged this week was because JPMorgan announced it would invest $10bn in 27 industries, including quantum computing.
This follows a September announcement from Rigetti confirming it had landed a contract with the US Air Force Research Laboratory to advance quantum networking.
Reality check
However, this Air Force contract was only valued at $5.8m over three years. And Rigetti’s $1.8m in revenue in Q2 is small potatoes set against the firm’s sizeable $17.5bn market cap.
For context, this is roughly equivalent to Legal & General, the 189-year old financial services company that manages over £1.2trn of assets.
Because Rigetti is still early-stage and unprofitable, we can’t assign it a P/E ratio. But it’s forecast to generate $21.5m in revenue next year. Based on this, the stock is trading at 814 times forward sales.
This nose-bleed valuation tells me that the stock is currently in a bubble. Investors are paying a massive multiple for the possibility of huge quantum computing profits some day. And that’s obviously far from guaranteed.
As such, I’ll be steering clear. The stock could come crashing down to earth at any point.
Another option
Having said that, I’m not a Luddite investor. I appreciate this technology may revolutionise drug discovery, cybersecurity, finance, and other industries. So I can’t blame investors for wanting to get some portfolio exposure.
Fact is though, it’s far too early to tell who will be the big winners (and losers) in this emerging space. Therefore, it might be wiser to consider taking a basket approach until the competitive dynamics become clearer.
One option to think about might be the VanEck Quantum Computing UCITS ETF. It holds 30 different stocks, including pureplays like IonQ, D-Wave and Rigetti.
Crucially however, it also holds established businesses such as Samsung Electronics, IBM, Microsoft, and Synopsys. These should give the ETF some sturdiness, even if Rigetti and the rest were to crash.
To repeat, I think quantum computing stocks are currently in bubble territory, so this ETF is also higher-risk. But if someone wanted exposure, I think it would be a safer bet to consider for a portfolio.
