While some quantum computing stocks present promising opportunities, there are also certain stocks that investors should approach with caution. Not all companies are in a position to capitalize on the technology’s potential. Overhyped stocks lack the necessary fundamentals or face significant challenges in their business models, resulting in these quantum computing stocks to avoid.
We’ll unravel the promising potential of undervalued quantum computing stocks and shed light on the stocks that may not live up to the hype. It should be stressed that the quantum computing industry is in the early and speculative stages. Many quantum systems remain theoretical, and there’s insufficient evidence to suggest their solutions will lead to a commercial product.
Rigetti Computing (RGTI)
Rigetti Computing (NASDAQ:RGTI) specializes in superconducting qubits and has secured strategic collaborations to advance its technologies. However, the company’s ongoing cash burn as it scales up operations makes it a risky bet.
Throughout 2023, Rigetti’s financial status reflected a significant cash burn, a common challenge for companies in the high-tech industry focusing on scaling up operations. For instance, by the end of the first quarter of 2023, Rigetti reported having $26.1 million in cash and cash equivalents, a decrease from $57.9 million at the end of 2022.
Although RGTI has a solid balance sheet despite these concerns, it has offloaded much of its financial risk to investors, with outstanding shares ballooning 29% at the time of writing.
Having one’s ownership decrease by a third is rarely a pleasant sight for investors. It can be argued that RGTI had little choice. However, this is not a symptom of larger quantum computing stocks such as Microsoft (NASDAQ:MSFT) and other blue-chips.
There could be better options than RGIT due to the ongoing share dilution expected.
IBM (IBM)
IBM (NYSE:IBM) has a longstanding presence in the quantum computing space and has made significant investments in technology. However, the company’s overall growth has been sluggish, and heavy investments in quantum computing haven’t yet resulted in proportionate financial returns.
I don’t like IBM for a few reasons. It’s a tech stock, but its capital appreciation has been around 10% off some of its growth peers, such as MSFT, over the last five years. IBM is a dividend aristocrat, but its dividend growth rate has declined since 2016; it pays a 4% dividend yield.
If income is one’s main concern, then there are alternative stocks out there that pay more and at a cheaper valuation.
Aside from its weakness of being a “jack of all trades,” its growth exploration into quantum computing has been disappointing. The company has developed several high-capacity quantum processors, including the 127-qubit IBM Quantum Eagle’ and the 433-qubit ‘IBM Osprey, marking substantial progress toward overcoming classical computing limitations.
It’s still a very early stage for the industry, but IBM’s investment has yet to indicate promising returns, let alone the realization of actual ones.
In general, IBM is a weird stock in that it fails to fulfill a common need in most people’s portfolios, offering neither strong immediate income, dividend growth or capital appreciation. However, it fits the bill if one seeks a low volatility stock in the tech sector, as it has a beta of 0.7.
D-Wave Systems (QBTS)
D-Wave Systems (NYSE:QBTS) focuses on quantum annealing, a specific type of quantum computation. While it has secured high-profile partnerships and clients, the narrow focus on quantum annealing instead of more general quantum computing solutions may limit its market opportunities.
Its focus on this specific solution also represents some concentration and execution risks, as it can’t easily pivot to creating general quantum computing systems without losing what differentiates itself in the first place.
It has made substantial progress in this arena. This is evident from its deployment of the Advantage2 system, which features a novel qubit design intended to reduce noise and improve performance.
Overall, because the quantum computing industry is speculative, it’s risky for companies with a narrow focus or a pure focus on quantum computing. Blue-chips like MSFT or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) may be better options because of their exposure to the quantum industry without putting all of one’s eggs in a basket or baskets.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
