Is Quantum Computing a Buy?

Last week was a wild one for quantum computing stocks.

Early on, the emerging technology sector, whose most prominent members include IonQ (NYSE: IONQ), Rigetti Computing (NASDAQ: RGTI), D-Wave Quantum (NYSE: QBTS), and Quantum Computing (NASDAQ: QUBT), fell after Alphabet's Google announced another breakthrough with its Willow quantum chip.

For the first time in history, Willow ran a verifiable algorithm that goes beyond the ability of traditional supercomputers, a significant step toward quantum computers being used for real-world applications.

You might think that achievement would have lifted quantum stocks, but instead, the sector fell, as the news seemed to indicate that Google was well ahead of them in technological development.

However, later in the week, quantum computing stocks spiked on a Wall Street Journal report that said the Trump administration was in talks to take a stake in some of them.

Quantum Computing (QCi), the smallest of the bunch, still finished the week down about 15%, but that hasn't marred a blockbuster year for the stock as it's up 1,312% over the last year.

Is Quantum Computing a buy today? Let's take a closer look at the stock to answer that question.

Image source: Getty Images.

Where Quantum Computing stands today

Even with Google's recent achievement, quantum computing could still be years away from being useful, and QCi is the smallest of the four quantum computing stocks mentioned.

Quantum computing companies use different techniques to function. QCi uses photons, or particles of light, to power its technology, favoring an integrated photonics approach to its technology.

QCi is still very much a development-stage company. It has almost no revenue, bringing in just $61,000 in revenue in the second quarter. However, the company is building out its infrastructure and moving forward on its business plan.

In the second quarter, the company received an order for its Quantum Photonic Vibrometer from Delft University of Technology in the Netherlands. The company also shipped its first commercial entangled photon source to a research institution in South Korea.

While those are clearly steps in the right direction, they do show that QCi and its technology are still at the research stage rather than the commercial stage.

However, QCi did sell a computing device to an automaker, and it received a purchase from a top five U.S. bank for quantum security solutions. It also opened an operational chip foundry in Arizona.

It's unclear when QCi will generate material revenue, but its costs seem under control for now, as it had an operating loss of $10.2 million in the second quarter. With $348.8 million in cash on its balance sheet and minimal liabilities, the company should be able to fund its expansion for the next few years.

Is Quantum Computing a buy?

Quantum computing and the quantum physics that underlie it are highly complex, and you'd likely need an advanced degree, or at least a high-level understanding of the science, to fully evaluate the technological capabilities of QCi and its peers.

As investors, though, we can assess QCi based on its existing financials and the broader market sentiment. The surge in quantum computing stocks is reminiscent of previous bubbles in emerging technologies, including the dot-com bubble and plenty of smaller cases like 3D printers and electric vehicles.

That doesn't mean Quantum Computing and its peers will be failures, but it makes more sense to think of a stock like QCi as some version of a lottery ticket, rather than a typical stock investment, as the outcome looks binary. At a market cap of $3.6 billion, there is plenty of upside potential for the stock to be a 10-bagger or better if quantum computing becomes the next artificial intelligence, but the stock could also head to zero if investor sentiment changes or the technology doesn't advance at the pace investors expect.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.