Rigetti Stock: The Rise and Fall of a Quantum Computing Company

TradingKey - There is much speculation surrounding Rigetti(RGTI.US) Computing as it is a high-risk player within the quantum computing space of the tech market, and Rigetti stock has experienced significant price fluctuations repeatedly.

The rapid fluctuations and price changes can be attributed to investor optimism with regards to the long term potential of quantum computing and at the same time an uncertainty of whether those long term theoretical benefits will translate into any cash flow in the short term.

The Analyst Upgrade Fueled the Early Surge in Rigetti Stock

The bullish call from Benchmark Analyst David Williams, who boosted the price target of Rigetti's shares from approximately $20 to $50, was responsible for the initial rise in Rigetti stock.

Because Rigetti's quantum hardware business recently announced sales of about $5.73 million for two Novera quantum computing systems, analysts and investors viewed this as a positive signal that quantum computing is starting to make its way out of the research lab and into the real world. This transaction accounted for approximately 72% of Rigetti's revenue last year and provided strong evidence of the continued growth of Rigetti & rsquo; s quantum hardware business. Ultimately, the analyst upgrade created considerable momentum in Rigetti stock price in early trading.

Review of Reality: Foundation Is Weak

A lot of positive talk came out about the company (initial phase of Quantum Computing systems for Research Centres, and Quantum Centre/Institutions selling 24-84 Qubits, etc.)), but investors looking more closely at the company's fundamentals drove the prices downward quickly after being "up" after opening up ($68 million market cap vs. already priced at supposedly $75 million or more - over 1,000 times their projection) to be a high risk stock.

The most serious concern for some investors is that it does not currently make any profits nor do analysts see them producing near-term profits, making it difficult for analysts to value Rigetti based on traditional valuation measures (i.e. P/E ratios, etc.).

Quantum Computing Has a Long-Term Future

Rigetti's stock has had significant ups and downs in value, and that has to do with the unstable quantum computing industry.

Quantum computers have powers and capabilities that classical computers are not able to match. This allows quantum computers to address some problems much faster and simpler than with classical computers. Quantum computers are also likely to bring tremendous advancements in many different fields, such as: cryptography, the development of new drugs, improved materials science, etc. However, it may take years before the typical business sees quantum computers used for their operations.

Therefore, each quantum computing company, like Rigetti, is developing an entirely new type of computing that has not been completed yet. Therefore, there is a lot of variability in the sentiment towards investors, and as a result, the price at which quantum computing company stocks trade may fluctuate drastically according to any occurrence: for example, a hardware order or analyst recommendation.

Why the Stock Pulled Back So Quickly

The rapid decline after the stock reached a quick peak can be attributed to the typical behaviour of tech stocks (not yet validated):

Analysts produce upgrades or headlines that generate buzz, but in some cases this has only short-lived impact.

Investors will start re-evaluating the fundamentals based on actual data experienced in the real world and will want to take profits.

Investors looking to take part in the recent run up would have sold their shares for profit.

As the company was already priced for a good proportion of long-term growth, the only way the company can continue to experience this kind of rapid growth in a sustained manner (going forward) is for the company to continue to produce good news much more frequently than not.

What to Look for in the Future as an Investor

The main question for investors considering an investment in Rigetti's stock, is whether Rigetti can move from being a research-oriented tech company into a viable commercial business model with the right amount of scale for growth.

There are multiple key indicators to consider when assessing whether Rigetti has momentum.

• Growth from sales and service contracts associated with quantum hardware.
• Partnerships with leading tech businesses and research institutions
• Growth in the number of qubits available and a decrease in errors associated with each qubit
• Growth in revenue volume vs. Operating expenses.

Until these metrics improve, Rigetti will likely stay at a share price that is very volatile and primarily influenced by investor's expectations about developing a successful quantum computer market rather than its current financial performance.