Is Quantum Computing Stock Going to $0?

IBM, Alphabet, and a handful of "pure-play" start-ups are hard at work trying to take quantum computing from the lab to the real world. These companies have made real progress in recent years in this sector, and given the technology's revolutionary promise, investors have piled in.

What sets Quantum Computing apart

One of these pure plays, Quantum Computing Inc. (NASDAQ: QUBT), has tried to separate itself from the pack by taking a different approach. While its competition is attempting to build the most powerful quantum computers they can, this company is focusing on what it says are more imminent solutions -- quantum products that can be put to use and drive revenue much faster.

Image source: Getty Images.

These include thin-film lithium niobate (TFLN) photonic integrated circuits (PICs) -- basically quantum semiconductors -- as well as software that's designed to support quantum computing systems. The company says that its products are flexible and designed to perform across "high-performance computing, artificial intelligence, and cybersecurity."

That's a compelling narrative, but if you ask me, that may be all it is -- a nice story.

The basic math doesn't add up

Before I go any further, here's a look at the company's financials, which tell a different story. The company generated roughly $546,000 in revenue over the last 12 months. That's not much to speak of, especially given that its market capitalization is $1.87 billion.

At the same time, Quantum Computing is spending tens of millions of dollars a year on development, and there's not much to indicate this is going to change anytime soon. The only real bright spot in the company's financials is its $555 million in cash reserves, which gives it a long runway and room to maneuver.

How did it fill its coffers with so much funding, given its minimal revenue? Stock sales.

The company issued more than $840 million in additional common stock over the last 12 months. While it may not need to do so again in the near term, it's clear the company takes no issue with heavily diluting its shareholders.

There are more red flags

Aside from the financials, when evaluating a stock, I put a lot of stock in a company's management. I look at not just their ability to execute and show sound financial judgment, but also how they communicate to the public and their shareholders. Quantum Computing's management is fond of making pretty significant claims that they struggle to back up. They also appear to overstate the company's capabilities.

Case in point: The company regularly puts out press releases that imply a more significant commercial relationship than is the case. Most of its contracts up to this point are one-off research grants and prototyping. These are not sustainable, meaningful commercial contracts.

You only need to look at the company's top line to see that. Despite claiming to have real products that can drive near-term revenue, it's getting little to no traction.

The bottom line

Is Quantum Computing stock going to zero? I actually think there's a reasonable chance it will. At the very least, I believe it will seriously underperform the market. This is not a stock I would recommend buying.

Johnny Rice 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.