This Hot Quantum Computing Stock Keeps Climbing -- Here's What's Driving the Rally

Quantum computing stocks have been on a roll recently. Many popular pure-plays in the niche have surged thanks to increased investor interest, company-specific business wins, and an announcement by JPMorgan (NYSE: JPM) that it's investing in the quantum computing realm. Among them, Rigetti Computing (NASDAQ: RGTI) has risen by nearly 200% since the start of September.

That kind of rapid run-up may give long-term investors pause, as it looks a lot like a hype-cycle bubble. Is that the case for Rigetti, or are there real reasons to invest in the stock now?

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Rigetti is selling real quantum computers right now

While Rigetti's stock has surged quite a bit over the past few weeks, it isn't without cause. It is a pure-play with no backup plan; it's quantum computing supremacy or bust. This keeps Rigetti extremely focused on that goal, while some of the legacy big tech players involved in the technology are just looking for some success in the quantum computing realm to bolster their existing businesses.

Rigetti is attempting to take on some of those legacy players head-on with the technology path that it has selected. Unlike some of its peers that are pursuing less common technological paths, Rigetti is using superconducting qubits -- one of the most well-developed and utilized qubit technologies.

When the circuits in these machines are cooled to temperatures near absolute zero, they behave in ways governed by quantum mechanics, which allows them to be used to perform quantum computing calculations. This is the same approach that giants like International Business Machines and Alphabet are using, so Rigetti's solution will need to be top-notch to survive.

However, it's already showing some signs of success. Rigetti recently announced sales of two of its quantum computing systems for a total of $5.7 million. That's not a massive sale in the grand scheme of things, but it shows that Rigetti is delivering quantum computing products right now. The Asian manufacturer and California tech start-up that made those purchases likely vetted other quantum computing solutions before deciding on Rigetti's systems, so this is a vote of confidence that its technology is among the best available right now.

Another news item that likely provided some lift to the stock was JPMorgan's announcement that it plans to invest $1.1 trillion over the next decade in industries that it views as critical to national and economic security. Under the umbrella of those investments, a $10 billion fund for 27 specific industries, including quantum computing, was also announced. Rigetti's stock surged 25% following the news, despite no specific announcement that JPMorgan would even invest in it.

However, the reason the cohort of quantum computing stocks surged was that an investment by JPMorgan would add legitimacy to the space, showcasing that a legacy Wall Street institution views quantum computing not just as a futuristic and speculative technology, but as one destined to have a real future. lThis was all exciting news for Rigetti investors, but is it too late to buy the stock now?

Rigetti Computing could have more room to run

If you shift your focus from the next few months to the next decade, it's easier to see how Rigetti could still have room to run. Rigetti estimates that the total annual value for quantum computing usage will be $15 billion to $30 billion between 2030 and 2040. That's not an outlandish projection, and I think it could be a legitimate projection.

However, the industry landscape is highly competitive, and it's unlikely that one company will run away with the lion's share of the market unless its technology is vastly superior to its rivals' offerings. If we project that Rigetti Computing can capture a 25% market share by 2035 and the annual value of the quantum computing market reaches $30 billion by then, Rigetti could be generating $7.5 billion in annual sales.

It's impossible to know for certain what kind of profit margins these companies will generate, but if it can squeeze out a 30% profit margin, Rigetti Computing could generate $2.25 billion in profits. Based on all of those assumptions, and further assuming that it trades at a reasonable 30 times earnings at that point, it would be a $67.5 billion company a decade from now. Rigetti's market cap is $15 billion currently, so that would amount to 350% upside if these projections are correct.

That's solid growth over a decade, but if that projection turns out to be wrong or if Rigetti isn't one of the clear winners in the quantum computing race, it could be worth a lot less. This is a high-risk, high-potential-reward stock, and with a lot of the hoped-for wins already baked into its stock price, the risks are too high for me.

Eventually, another market downtown will arrive, and in its wake, quantum computing stocks will likely be available at far cheaper prices. That's when I'll do my buying, as the quantum computing investment sector has gotten quite hot.

JPMorgan Chase is an advertising partner of Motley Fool Money. Keithen Drury has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, International Business Machines, and JPMorgan Chase. The Motley Fool has a disclosure policy.