Market volatility has struck again. Last week, U.S. equities continued their slide in August, leaving many market-watchers wondering whether or not equities in general had reached their peak. The attributed to this precipitous decline in share prices is most likely multi-faceted. There is the Federal Reserve, which still is not sure it will pause on interest rates – more hikes could push the U.S. economy into recession territory, and investors, for good reason, become skittish when the possibility of a recession becomes greater.
Then, there are also the astronomic valuations public equities have already reached this year, and no, it is not just Nvidia (NASDAQ:NVDA). Equity valuations have largely risen in a year where revenue growth and gross margins have contracted, resulting in some inflated multiples, especially amongst technology stocks.
The slide in valuations last week presents an opportunity for investors to buy into new and exciting sectors. I have written about quantum computing before, and several pure-play quantum computing stocks have returned hefty sums to their investors this year. The novel technology, though still very much in its infancy, has the potential to solve complex problems that normally slow down classical computers, such as optimization, cryptography, machine learning, and simulation. Below is a list of quantum computing investors should not sleep on, especially as volatility makes certain valuations cheaper.
Analog Devices (ADI)
Similar to the field of artificial intelligence, it is hard to discuss quantum computing stocks without mentioning the semiconductor companies that create some of the small devices powering quantum computers. Analog Devices (NASDAQ:ADI) is a leading semiconductor company that simply designs and provides integrated chips and data converter products to a variety of industries, including communications, industrial, and automotive. Analog Devices happens to also be a key player in quantum computing, as it supplies high-performance analog and mixed-signal components that are essential for quantum processors. These components include amplifiers, converters, switches, filters, and clocks.
Analog Devices has shown strong financial performance in 2022 and 2023. Revenue increased by more than 64% year-over-year in fiscal year 2022 (ended October 29), driven by strong demand in the company’s industrial and automotive end-markets. Similarly, the company’s first and second quarterly results for 2023 beat expectations on both revenue and EPS. In the first quarter, ADI reported $3.25 billion in revenues, up 21% year-over-year, while in the second quarter, the company reported $3.26 billion in revenue, which grew 10% year-over-year. As in fiscal year 2022, growth in both quarters was attributed to demand for industrial and automotive chips.
The semiconductor company has proven itself capable of successfully meeting the needs and new challenges of clients in its respective end markets, and as quantum computing grows, Analog Devices could benefit similarly from good product execution.
Rigetti Computing (RGTI)
Rigetti Computing (NASDAQ:RGTI) had made it on my prior quantum computing list, and with shares down more than 17% over the past month, this may be just the moment for some of those patient investors to buy in. To recap, Rigetti Computing is a vertically integrated pure-play quantum computing firm, which means the company is involved in designing and manufacturing its multi-chip quantum processors. Rigetti leverages superconducting circuits as qubits fabricated on silicon chips and operating at near-zero temperatures.
Rigetti has formed partnerships with several leading companies and institutions, such as ADIA Lab, Ampere Computing, Deloitte, NASA, and the U.S. Department of Energy, to bring awareness to its quantum computing technology. Rigetti Computing also earlier this year announced a collaboration with Amazon Bracket, a fully managed quantum computing service from AWS, to add support for Rigetti’s new 80-qubit processor. Rigetti Computing’s financials show robust growth potential, as the company generated $13 million in revenue in 2022, up 46% year-over-year. The quantum computing firm expects increased growth as its quantum projects scale. RGTI’s shares have surged 185% year-to-date.
Nonetheless, shares have become volatile lately – a positive earnings report sent shares soaring earlier this month, but recent macroeconomic volatility has sent shares back plummeting. Investors betting on quantum computing should pay close attention to these moves and perhaps buy in at optimal entry points.
FormFactor (FORM)
FormFactor (NASDAQ:FORM) is a semiconductor test and measurement company that provides advanced wafer probe cards, engineering systems, and analytical probes for various applications such as logic, memory, radio frequency, power management, photonics, and quantum computing. The semiconductor equipment company is also one of the leading suppliers of cryogenic probes that enable the testing of quantum devices at extremely low temperatures.
FormFactor’s financial results as of the past year have been mixed. In February, their fiscal year 2022 earnings print showed a year-over-year decline in annual revenues, mostly stemming from weak demand from customers in Taiwan and China, representing more than 40% of 2022 revenues. In FormFactor’s recent Q2 earnings print, the company recorded a year-over-year revenue decline due to softening demand for its testing probe product. As these countries experience sluggish growth this year, some investors remain pessimistic about FormFactor’s near-term prospects, reflected in how FORM’s shares have appreciated versus semiconductor peers like Nvidia or Advanced Micro Devices (NASDAQ:AMD).
Despite macroeconomic setbacks, FormFactor is still well-positioned to whether the current storm will eventually capitalize on the growing demand for quantum computing and other emerging trends such as 5G, artificial intelligence, and autonomous vehicles. Before the chip slump, FormFactor was growing annual revenues in the low double digits. Furthermore, the company’s balance sheet as of July 1 remains robust, with more than $236 million in cash and cash equivalents to spare and a relatively small debt balance.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
