With shares up by 223% year to date, Rigetti Computing (NASDAQ: RGTI) is soaring as Wall Street becomes more interested in quantum computing. While this industry is less flashy than other hype cycles like generative artificial intelligence (AI), it could be just as impactful over the long term. Let’s dig deeper to decide if Rigetti is a potential millionaire maker.
Quantum computers are computers that use quantum mechanics to solve problems much faster than their traditional alternatives. While the industry is still largely in the research and development stage, analysts at McKinsey estimate that it could add $1.3 trillion in value to the economy by 2035. Most of the growth is expected to come from applications like pharmaceutical development and materials science.
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The analysts also believe quantum computers could play a role in training AI algorithms and neural networks, which makes this industry an exciting way to get indirect exposure to the red-hot opportunities like large language models (LLMs) or self-driving cars.
In the best-case scenario, Rigetti Computing could be the Nvidia of quantum computing because of its picks-and-shovels business model. Like the legendary chipmaker, Rigetti serves the infrastructure side of this opportunity, building quantum computers and their key hardware components like processors. The company has also developed its Quantum Cloud Services (QCS) platform designed to give clients access to its quantum processors remotely through the cloud.
Rigetti has designed QCS to integrate with traditional computer hardware, making it easier for customers to access the technology. Naturally, this could represent huge cost savings for a client compared to building its own quantum computing capabilities in-house.
By going public through a reverse merger with a special-purpose acquisition company (SPAC), Rigetti was able to list at a particularly early stage in its operations. Third-quarter revenue fell 23% year over year to $2.4 million. And while the company generated a gross profit of $1.2 million, it posted an operating loss of $17.3 million after accounting for important outflows like research, development, and office salaries.
It gets worse. Rigetti has spent a whopping $9.7 million on stock-based compensation this year. While this technique can save cash and motivate employees, it dilutes shareholders by increasing the number of shares outstanding and lowering their claims on future earnings or cash flow.
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