Why Is Rigetti Computing Stock Soaring Today?

Key Points

• Rigetti announced that it has secured a multimillion-dollar contract with the Air Force to help develop quantum technology.

• Although the contract sparked investor enthusiasm, Rigetti's CEO made it clear that this is an advanced research program.

• 10 stocks we like better than Rigetti Computing ›

Shares of Rigetti Computing (NASDAQ: RGTI) are rising on Friday, up 15.4% as of 2:59 p.m. ET. The jump comes as the S&P 500 and the Nasdaq Composite gained 0.3% and 0.4%, respectively.

The quantum computing stock continues to ride momentum from a federal contract win announced yesterday.

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Rigetti secures $5.8 million Air Force deal

The company announced that it has secured a $5.8 million, three-year contract from the Air Force Research Laboratory, focusing on quantum networking technology.

Under the contract, Rigetti plans to work with Netherlands-based start-up QphoX to explore methods for combining their technologies. The goal is to enable information transfer between quantum computers.

While the announcement excited investors, CEO Subodh Kulkarni made clear this is an experimental program, describing it as "a far-out kind of research program" that's "very much in the R&D phase."

Image source: Getty Images.

The quantum networking opportunity remains distant

The potential of quantum is enormous, but the technology is earlier in its development than investors believe it to be. Rigetti and its peers are heavily overvalued. The company's price-to-sales is an astronomical 779. Despite sales last year of just $10.8 million -- which was less than 2023's sales -- the company's market cap is over $9 billion.

There are more risks here than upside with a valuation like that. The quantum computing market is full of a lot of hype and enthusiasm that I think is leading investors astray. I would stay away from Rigetti stock and others like it. Instead, investors should look at stocks like Alphabet.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.