Where Will Rigetti Computing Stock Be in 5 Years?

Major technological breakthroughs can potentially generate significant shareholder value over time. A prominent example of this is the late 2022 launch of OpenAI's ChatGPT, which sparked a tremendous rise in interest and investments in generative artificial intelligence (AI). Investors who are forward-thinking and eager to spot the "next big thing" often look for technologies on the verge of mainstream discovery.

One sector that is gaining attention is quantum computing, making Rigetti Computing (RGTI 5.36%) an intriguing option for those looking to invest in this emerging technology. In the past year, shares of this mid-cap tech company have surged nearly 400%. However, with the full potential of quantum computing still years, if not decades, away from realization, the question remains: is now the right time to invest? Let's explore what the next five years could hold for Rigetti.

Are We Approaching a Quantum Revolution?

Quantum computing employs a fundamentally different method for processing data compared to conventional computers. While the mechanics of how they operate can be complex, they hold the capability to swiftly solve specific types of problems that would take classical computers years or even centuries. This technology could revolutionize fields like materials science and drug discovery by significantly enhancing data processing speeds, tackling previously solvable mathematical challenges, and simulating highly intricate real-world processes.

The Boston Consulting Group estimates that quantum computing might produce up to $850 billion in economic value annually by 2040. Early players in this area, such as Rigetti, stand to gain from this potential, but there is considerable uncertainty about when this technology will become viable and how it will be applied in practical scenarios.

Nvidia's CEO, Jensen Huang, has suggested that it may take an additional two decades before quantum computers are fully functional in real-world applications. This timeline poses a risk for many small innovators in the field who might exhaust their resources before establishing sustainable business models. Nevertheless, various nations are prioritizing investments in quantum computing, which could lead to some of these companies receiving government support to stay afloat.

Rigetti's Unique Position in the Market

Rigetti has carved out a niche within the quantum computing hardware sector, akin to Nvidia's role in generative AI. The company designs and constructs quantum computers and processors while offering a platform called Quantum Cloud Services (QCS) that delivers quantum computing capabilities remotely via the cloud.

Through QCS, Rigetti allows clients to leverage the immense power of quantum computing without the need to develop and maintain their own setups. While this proposition appears highly promising, Rigetti's current financial state is a cause for concern.

In the third quarter alone, the company's revenue dropped by 23% year over year to just $2.4 million, with operating losses reaching $17.3 million—significantly outpacing sales. To claim that Rigetti lacks a clear path toward profitability would be an understatement. The company is depleting its cash reserves at an alarming rate, and without consistent revenue growth, it will be challenging to reverse this trend. (Note that the company is scheduled to announce its Q4 results on March 5.)

A staggering 69% ($12.8 million) of Rigetti's operating expenses, totaling $18.6 million, went toward research and development. This heavy spending presents a dilemma for Rigetti’s management: cutting back could risk losing ground against better-funded competitors like Alphabet and Nvidia, which are also heavily investing in quantum technology.

What Does the Future Hold for Rigetti's Stock?

The potential of quantum computing, similar to that of generative AI, could lead to transformative advancements and significant shareholder wealth. However, investors should be cautious about rushing to conclusions. In the coming five years, Rigetti Computing is expected to continue experiencing substantial cash burn without making the shift to profitability. The company may likely resort to equity dilution to support its operations, a strategy that typically results in negative impacts on stock prices.

Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Will Ebiefung has no stake in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia.

Quantum, Investment, Technology