Where Will Rigetti Computing Stock Be in 5 Years?

What goes up must come down -- unless it's backed by strong fundamentals. Rigetti Computing's (NASDAQ: RGTI) recent rally certainly wasn't. And although the stock is still up by 800% over the last 12 months, it has begun to rapidly give back its gains, with shares down by almost half from their all-time high of $56 reached in mid-October.

The next five years will be a make-or-break period for the company, and quantum computing will either finally make its way into mainstream acceptance or become exposed as yet another underwhelming technology hype cycle. Let's dig deeper to see how things might play out.

The next five years are crucial

Quantum computing is a branch of physics and computer science that aims to replace a computer's traditional bits (which can only be in one of two states) with qubits that can be in multiple states simultaneously. If it works as expected, it could lead to the creation of devices many magnitudes more powerful than the world's strongest supercomputers.

This technology has enormous implications for the economy. It could speed up the discovery of new small-molecule drugs, materials, and logistics paths, and even assist with training large language models (LLMs) in a process called quantum artificial intelligence (AI). And industry leaders like Alphabet and IBM are confident that they can bring commercially viable applications to the market by 2030.

For its part, Rigetti Computing isn't waiting until the technology is perfect before trying to sell something to consumers. The California-based start-up's business model involves vertically integrated systems where it makes quantum chips and processors at its in-house foundry while also turning this hardware into functional computers.

The company also offers a cloud-based "quantum computing as a service" that allows clients to access its hardware remotely via the cloud, saving them the expense and complexity of buying a system or attempting to build one from scratch.

Rigetti's business is highly experimental

Industry leaders like Alphabet and IBM admit that commercially viable quantum applications are a half-decade away. And that raises the question of how sustainable demand will be for Rigetti's highly experimental early quantum-related products and services.

With a market cap of just $9.3 billion, the stock is relatively cheap. For context, that's just a fraction of Google's $49 billion research and development budget in 2024.

Image source: Getty Images.

And it stands to reason that a larger rival would have already acquired Rigetti if it had a real early lead in building commercially viable quantum computers. But its lackluster operational results give some clues about why the tech giants aren't taking the bait.

Third-quarter revenue fell by around 18% year over year to just $1.9 billion, which is a drop in the bucket for a publicly traded company. And unfortunately, Rigetti's cash burn is much less invisible. The company posted an operating loss of $20.5 million in the period -- mainly because of research and development expense. Although it's still too early to know for sure, these are not the results you would expect from a company selling high-impact and commercially viable enterprise hardware.

Is the stock a buy?

Shares in fundamentally weak companies like Rigetti don't always underperform. If quantum computing experiences more breakthroughs (and this is very likely over the next five years), the stock can boom again. That said, the risks of buying seem to outweigh the rewards right now.

If current operating losses remain the same, investors can expect Rigetti to lose over $80 million on an annualized basis. And realistically, the losses will likely continue growing, just as they did in the third quarter. The company will eventually blow through the roughly $447 million in cash and short-term securities on its balance sheet.

Investors who get in too early will probably face shareholder dilution as the company eventually taps the equity markets to raise capital. It might make the most sense to sit on the sidelines for now.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and International Business Machines. The Motley Fool has a disclosure policy.