Where Will Quantum Computing Inc. Be in 1 Year?

Key Points

• Quantum Computing Inc. is arguably one of the more speculative names in the space.

• But escalating shareholder dilution and a lack of technological progress don't necessarily mean a correction is just around the corner.

• Buzz surrounding quantum computing stocks could continue to grow, which may bode well for even lower-quality plays.

• 10 stocks we like better than Quantum Computing ›

Quantum Computing Inc. (NASDAQ: QUBT) may literally share a name with one of the hottest tech trends, but is it the best way to play this trend? You don't have to look far to see why that's debatable. Check out commentary on this developer of photon-based quantum computing technology, and you'll find plenty of analysts and pundits pointing out the flaws to this stock's bull case.

I will go through some of these key flaws, but with the caveat that these issues may not be indicative of an upcoming drop for shares. Only time will tell whether Quantum Computing Inc., which calls itself QCi, lives up to expectations, yet in the near term, hope and hype could continue.

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That said, while I think it may be risky to go bearish on this name in the next year, I'm also not giving a bullish endorsement for this recent hot stock.

QCi's questionable bull case

The concept of quantum computers, or computers that use quantum physics concepts like superposition to simultaneously process large amounts of data, has yet to make it to market due to a variety of performance issues.

Start-ups and established tech companies alike are spending heavily on research to resolve these bottlenecks. However, while the focus has largely been on developing ion- and/or electron-based quantum computing systems, this company is focusing on photonics, or lightwave technology, to be the building block for dependable quantum computing systems.

Image source: Getty Images.

However, it's not as if QCi has demonstrated progress with these plans so far. The company has issued multiple press releases touting partnerships, prototypes, and other developments that at first may seem like signs of technological progress. However, compare that to competitor Rigetti Computing, which has continuously hit new technological milestones since its 2017 founding, most recently in July.

Meanwhile, this lack of progress comes as QCi's losses and the need for capital continue to grow. Last quarter, the company reported losses of $36.5 million. To cover this cash burn, the company has resorted to dilutive equity raises, first via a $200 million private placement completed in June, then with a $500 million private placement completed just last week. Concerns are rising that QCi will keep raising and spending substantial capital, but will continue to have little to show for it.

The short term is murky

If Quantum Computing Inc. continues to engage in dilutive equity financing, yet still makes minimal progress with its business plan, eventually shares should fall, as dilution waters down the per-share value of the company.

However, while that may happen eventually, it may not necessarily happen immediately. The stock could keep gaining momentum in the short term as quantum computing gains steam. There are two things pushing the trend forward.

First, the White House is ramping up efforts to promote the proliferation of quantum computing technology. Second, large tech companies like IBM are ramping up their quantum computing efforts as well. If quantum computing goes from trend to megatrend, watch out! A full-on "quantum computing stock bubble" could emerge.

In such a scenario, with hope and hype, not fundamentals, driving price action, names like Quantum Computing Inc. could hit even loftier valuations. Remember during the electric vehicle bubble, when pre-revenue start-ups like Quantumscape, Lucid Group, and Rivian briefly sported valuations in the tens or even hundreds of billions of dollars? Something similar could play out here, given the right conditions. But without a solid and growing business under it, a stock can be dangerous to own.

When it comes to buying this stock, tread carefully

Quantum Computing Inc.'s shares may not be on the verge of reversal, but that may be more of a warning to short-sellers, who are betting on the stock's fall, than a signal to buy this stock. I'd suggest those bullish on the quantum computing trend look at one of the established tech companies investing heavily in this newly emerging field.

I'm not impressed by QCi as it lacks an established track record of technological progress, and has yet to prove itself.

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Thomas Niel 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.