Where Will Quantum Computing Inc. Be in 5 Years?

Quantum computing promises transformational progress in materials science and drug discovery, and investors have been willing to overlook dismal sales and earnings to ride what could be the next big tech wave after artificial intelligence.

It's no wonder, then, as investors have been open to speculative investments over the past few years, that Quantum Computing Inc.'s (NASDAQ: QUBT) stock has increased by more than 400%.

But where is Quantum Computing, also referred to as QCi, headed over the next five years? I don't think the trajectory is good amid the company's fledgling technology, rising costs, and an increasingly lower appetite for risky investments.

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The next five years could force QCi's tech to sink or swim

QCi wasn't always a quantum computing company. A little more than five years ago, it was called Innovation Beverage, which, as you might guess, was a beverage company. In 2021, the company made a hard turn toward quantum computing and changed its name and stock ticker.

Since then, QCi has established a quantum computing foundry, producing processors that can operate at room temperature for quantum computing applications. The tech differs from its rival IonQ, which uses trapped ions for quantum computing and requires containment in very cold machines to function.

Less delicate chips capable of running at room temperature sound like a good idea, but so far, QCi's tech has mainly been used for research purposes. NASA and a major automotive manufacturing company are testing the company's processors, but there's no guarantee that they or other major companies will purchase large quantities of QCi's technology.

QCi has a lot to prove, and I think if we fast-forward five years, it'll be clear whether or not the company's technology has succeeded. Given that the company conveniently switched to quantum computing from beverages and that investors are treating it more like a meme stock than a solid long-term investment, I have my doubts.

I think QCi's share price increase over the past few years may have given the company a certain level of credibility in some investors' eyes that it has yet to truly earn. The development of its technology over the next five years will determine whether it deserves the attention it's received recently.

The next five years will be expensive for QCi

Investors must be aware that QCi will need to make significant investments in its fledgling technology over the coming years, without any guarantee of success. The company has $1.6 billion in cash, which provides a solid financial runway, but it's also spending heavily and has negligible revenue.

For example, QCi reported just $384,000 in sales in its third quarter, compared to an operating loss of $10.4 million. Shareholders may point to net income of $0.01 per share in the quarter -- up from a loss of $0.06 in the year-ago quarter, but this was the result of an accounting gain from a $9.2 million mark-to-market adjustment of a derivative liability. In short, the gain was temporary and not a sign of underlying financial improvements.

Moreover, investors seeking to invest in QCi now will be paying a substantial premium for the company's stock. Quantum Computing's price-to-sales (P/S) ratio is an unfathomably high 2,800, compared to the technology industry's average P/S ratio of just over 8.

That means investors are paying an extremely high premium to own QCi's shares at a time when the company remains a highly speculative play in quantum computing. With investors beginning to lose interest in speculative investments, the quantum computing market could see a shakeout over the coming years. QCi's losses, lack of sales, and expensive share price make owning the company's stock an unappealing proposition.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.