Is Rigetti Computing Stock Going to $50?

The stock market is on a tear. Driven by renewed enthusiasm for artificial intelligence (AI), the S&P 500 index is up 6.3% over the last month, while the tech-heavy Nasdaq Composite is up a whopping 9.4%.

The run, along with a major announcement from the U.S. Commerce Department, has kicked off a rally in quantum computing stocks. As investors look for the "next AI," they're snapping up shares of companies like IonQ, D-Wave, and, of course, Rigetti Computing (NASDAQ: RGTI).

With the recent launch of its most powerful quantum system to date, many investors believe that Rigetti is one of the most promising quantum pure-plays around. But what about the stock? After jumping more than 50% in a month, is it still a buy? Could shares of Rigetti reach $50?

Why Rigetti is turning heads in the quantum computing race

Rigetti builds superconducting quantum computers, using the same basic approach as Alphabet's Google and IBM. This gives the company's systems a few advantages: speed and scale.

Rigetti just launched its most powerful computer to date, the 108-qubit Cepheus-1-108Q. ,

Beyond the tech itself, the company designs and builds everything in-house, from the quantum chips to the software that runs on them. If its approach delivers, Rigetti would own the entire vertical, giving it a major leg up.

As for financials, revenue nearly tripled year over year last quarter, and the company is sitting on more than $400 million in cash, double what it held a year ago.

And of course, there is the recent news: The U.S. government will provide $100 million to Rigetti as part of a larger $2 billion quantum investment package. That's a pretty big deal.

Image source: Getty Images.

The risks hiding behind Rigetti's explosive stock rally

Revenue nearly tripled last quarter, rising from $1.5 million to $4.4 million. At that scale, the growth percentages don't mean much. And the company is still deeply cash-flow negative, burning $20 million in free cash flow (FCF) this quarter.

Of course, there is the valuation issue: Shares currently trade at a price-to-sales (P/S) ratio of nearly 900. The word extreme could be applied here.

Rigetti's technology is promising, no doubt, but it is still just that -- a promise. The company has a runway to keep researching for years, but that's essentially what you're buying here -- research. This is not really a true business at this point.

And as exciting as the government deal is, the $100 million in funding is essentially a grant. The money will be used to fund research and development on an unproven technology in its infancy.

Could Rigetti stock actually reach $50?

So, could shares hit $50? Absolutely. In fact, they probably will. But critically, I don't think they'll stay there.

Once the current rally cools and investors start fleeing speculation, a company trading at 900 times sales with $4.4 million in quarterly revenue is going to get crushed.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, International Business Machines, and IonQ. The Motley Fool has a disclosure policy.