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What the fuss is about

A lot of interest is building regarding quantum computing right now. Traditional computers process information in bits (1s and 0s). Quantum computers, on the other hand, use qubits (quantum bits), which are basically more advanced. That means for certain kinds of problems, it could outperform even the world’s fastest supercomputers by a country mile.

As a result, there are many implications for how this could eventually be used in the real world. This ranges from drug discovery and materials science, right through to AI and machine learning. At the moment, most applications are early-stage. But the key point is it could be transformative. This is why companies, governments, and investors are getting increasingly excited about it.

For investors, buying quantum-related stocks right now could represent a long-term buying opportunity in an ISA. With patience and a vision for years to come, if it really takes off, then the share price returns could be very high. Obviously, the risk is that excitement is misplaced or progress is slower than expected, which could stunt returns.

One to note

A popular stock in this space is Rigetti Computing (NASDAQ:RGTI). The US stock is up 2,880% in the past year! It builds hardware and software to enable quantum computing systems.

Its business model includes hardware sales (on-premises quantum systems), cloud subscriptions and research. I like this because it’s quite diversified in different elements that go into the quantum universe. Therefore, as the sector becomes more developed, it should have enough fingers in the pie to identify the key growth area.

The firm is focusing on the transition from research to revenue-generating assets. As this continues, I think more traditional investors may take notice.

Obviously, the stock has already soared this year, but with a market cap of $11bn it still has plenty of scope to grow. In terms of risks, revenue remains extremely small relative to the ambitious growth plans. It’s also still loss-making. Some are saying the stock is in a bubble, which could pop at any time.

Yet with any technology that’s in a relatively early stage, related stocks will be seen as high-risk. Rigetti is undeniably a risky stock, but with that comes the potential for high returns in years to come. Therefore, investors with the needed risk tolerance might want to consider it for their ISA portfolios.

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Now, I did take a look at the quantum computing company at the time. But with the technology still in its infancy, I decided it was too risky…

What a mistake

Fast forward to today and the stock has risen around 50-fold since. So you could say I made a major mistake not buying in. Had I put five grand on it back then, I’d now have about $250k. I could have bought myself a Ferrari!

Is it too late to buy?

Is it too late for me to get on board the Rigetti train today? Sadly, I think it is.

The company does have some really interesting technology. A leader in the quantum computing space, it offers ‘full stack’ solutions and has products ready to ship. But here’s the thing – quantum computing technology’s unlikely to go mainstream until the mid-2030s to 2040. That’s a long time away.

And in the near term, Rigetti’s sales are forecast to be very small. This year, analysts expect revenue of just $8.1m (versus $10.8m last year). That’s peanuts.

Next year, sales are forecast to jump to $21.5m. But that’s still peanuts. Especially when we look at the valuation here. At today’s share price, Rigetti has a market-cap of around $15.6bn.

So taking that sales forecast for next year, we’re looking at a price-to-sales ratio of about 725.

Risk versus reward

That’s a sky-high valuation. For reference, Palantir trades on about 100.

Now obviously, new technologies can generate big returns for investors in the long run. So they can be worth paying up for. But looking at that sales multiple, and how far the stock has run over the last year, I think the stock’s gotten ahead of itself. Ultimately, I don’t think this company is worth $15.5bn.

If I was to buy the stock now, I think there’d be more chance of me losing money than making it. Because history shows stocks that shoot up like this tend to come crashing down at some point if the fundamentals don’t support the share price rise.

Of course, the stock could keep rising in the near term. Today, retail investors continue to pile into it, pushing the share price higher.

At some stage though, I reckon the fundamentals (ie sales and earnings) are going to come into focus. And when that happens, things could get ugly.

It’s worth noting that in recent days there’s been talk that CEO Subodh Kulkarni has been selling all his shares. This suggests he currently sees the company as overvalued.

Better opportunities in the market?

The good news is that there are lots of other great growth stocks out there that look a bit safer. In industries such as artificial intelligence, cloud computing, chips, and FinTech, there are tons of opportunities right now.

The post Up 5,000% in a year, is Nasdaq stock Rigetti (RGTI) a ticket to wealth? appeared first on The Motley Fool UK.

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.

The post UK investors are snapping up this ex-penny share that’s up 6,410%! appeared first on The Motley Fool UK.

Should I follow the crowd and buy this growth stock for my ISA? Let’s take a look at the investment case.

What does Rigetti do?

Rigetti is a US-listed quantum computing company. Still in its infancy today, quantum computing is an emerging field of computer science that harnesses the capabilities of quantum mechanics to create computers that are far more powerful than standard computers (with a quantum computer, a problem that might take a traditional computer thousands of years to solve can potentially be solved in a matter of minutes).

Rigetti is a pioneer in ‘full-stack’ quantum computing, meaning that it designs and produces high-powered quantum chips, integrates them with control systems, and develops software for programmers to use. Through its Quantum Cloud Services (QCS) platform, its machines can be integrated into any public, private or hybrid cloud, so there’s a lot of potential here.

“Were on a mission to build the world’s most powerful computers to help solve humanity’s most important and pressing problems”
Rigetti Computing

The financials and valuation

So, this all sounds very exciting. But what about the numbers and valuation?

Well, there are no earnings here as the tech company isn’t profitable yet. So, we can’t get a price-to-earnings (P/E) ratio.

But the company is generating some revenue. So, we can look at the price-to-sales ratio and compare that to other growth stocks.

This year, analysts expect Rigetti to generate revenue of around $8.1m. Next year, the forecast is $21.5m.

Compare those figures to the current market cap of $14.2bn and we get price-to-sales ratios of 1,753 and 660.

Is this a bubble?

These are really high multiples.

To put them in perspective, AI stock Palantir – which was recently called one of the most overvalued stocks of all time – has a price-to-sales ratio of about 100. Meanwhile, Nvidia, which is also seen as expensive by many investors, is on roughly 22.

Looking at the figures here, I think this stock is probably in ‘bubble’ territory right now. It seems to me that a lot of retail investors (and maybe algorithmic traders too) have piled into it without looking at the financials and with little concern for valuation (which always matters in the end).

And looking beyond the valuation, one other thing that concerns me is the share price chart. Recently, it has gone ‘parabolic’ (ie almost vertical). I’ve seen this happen before with growth stocks and it usually ends in tears.

I don’t want Rigetti to be ‘Regretti’

Given the valuation and share price chart, I won’t be buying the stock for my ISA in the near term. The company does have potential, however in my view, there are better – and safer – growth stocks to buy for my portfolio today.

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Given this, here are two popular Nasdaq shares that I won’t be buying in 2025.

Trumped-up Tesla

The first stock I’m avoiding is Tesla (NASDAQ: TSLA). You don’t get much more popular than Elon Musk’s pioneering electric vehicle (EV) firm. It regularly tops the charts of the UK’s most bought shares.

With a 1,130% share price rise in five years, it’s been a monster winner.

Yet Tesla also remains the ultimate Marmite stock. Investors either love the firm’s innovation and ambition, or hate and ridicule it as a grossly overvalued car company.

I stand somewhere in the middle. Tesla’s clearly more than a car firm because it has a fast-growing solar power business and is building humanoid robots. I doubt Peugeot is doing that.

Yet around 79% of the company’s revenue still comes from EVs. And those are harder to shift nowadays when cash-strapped people are putting off buying big-ticket items, including brand new cars.

Going on the latest Q4 figures, Tesla sold 1.79m vehicles last year (down slightly on 2023). Yet the stock is up 66% in a year and now trades at a price-to-earnings ratio of 108. This sort of multiple is usually reserved for a rapidly growing company, not one whose core business is facing growth challenges.

With Donald Trump likely to rein in EV subsidies, potentially putting further pressure on sales, I’m giving Tesla stock a swerve this year.

Quibbling about valuation again

The second popular stock I’m avoiding like the plague is Rigetti Computing (NASDAQ: RGTI). This quantum computing stock has been one of the most bought at Hargreaves Lansdown in recent weeks.

It has surged by an incredible 1,200% since early October!

However, a quick peek under the bonnet shows that Rigetti is incredibly speculative. That’s because quantum computing still faces significant scientific and engineering challenges that need to be addressed before it reaches widespread commercial adoption.

Consequently, even Nvidia CEO Jensen Huang has just predicted that useful quantum computers are 15 to 30 years away. As I write today (8 January), the stock has crashed 45% following this reality check.

Still, this is a fascinating technology, which could one day lead to game-changing breakthroughs across many industries. In healthcare, quantum computers could design new drugs for diseases like cancer or Alzheimer’s. And it holds the promise of more efficient electric batteries, as well as accelerated AI development.

If a small firm goes on to become the global quantum computing leader, it could generate life-changing returns for early investors. As things stand though, there’s not enough evidence this will be Rigetti.

Looking ahead, the firm is expected to post revenue of $16.2m this year. So it’s encouraging that revenue is being generated at this early stage. However, a share price of $10 translates into a forward price-to-sales ratio of 155.

This absurd valuation tells me to avoid the stock. During a market downturn, it could easily plunge by another 40%. That’s because the fundamentals aren’t yet there to back up the company’s valuation.

This year, I intend to dig into quantum computing investing opportunities, but I’ll be avoiding this stock for now.

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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.

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