Where Will Rigetti Computing Be in 3 Years?

There is no set formula for making millions in the stock market. But if you want to increase your chances of multibagger returns, bet on relatively small technology companies serving disruptive megatrends. With shares up by over 6,530% over the last 12 months alone, Rigetti Computing (NASDAQ: RGTI) is an excellent example of what is possible.

That said, past returns don't guarantee future results. And investors who missed the big rally are probably wondering if it is too late to get involved. Let's explore the pros and cons of Rigetti Computing to get a better idea of how shares might perform over the next three years and beyond.

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Betting on quantum computing

While quantum computing has been "just around the corner" for decades, analysts are becoming more optimistic that this time the prediction could actually be right. According to McKinsey, faster-than-expected innovation could make quantum computing a $72 billion revenue opportunity by 2035 (up from $4 billion in 2024). Much of this growth is expected to come from applications like life sciences and chemicals, where it could help companies discover new compounds.

As a pure-play quantum computing company, Rigetti is positioning itself to benefit from this potential megatrend through a picks-and-shovels approach, where it builds the superconducting quantum chips and hardware that will power the industry. It has also developed a platform called Quantum Cloud Services (QCS), designed to allow its machines to be accessed through traditional computer infrastructure via the cloud.

You can think of Rigetti as trying to become the Nvidia of quantum computing -- but with a twist. While Nvidia is a fabless semiconductor company that doesn't manufacture its own designs, Rigetti is an integrated systems company that controls its supply chain and can design and build its own chips. In 2017, the company built the world's first dedicated quantum foundry (FAB-1) located in Fremont, California. This facility allows Rigetti to produce a high volume of quantum hardware for internal use with more predictable performance, quality, and timelines.

What are the challenges?

On the surface, Rigetti Computing has everything it needs to succeed. Its vertically integrated supply chain and technological edge could give it a deep economic moat when quantum computing is ready for primetime. The problem is that we have no idea when (or even if) that will happen. While some analysts are optimistic, others strike a more cautionary tone.

At Nvidia's "Quantum Day" even in March, CEO Jensen Huang claimed that it could take as long as 20 years for useful quantum computing devices to be available -- even expressing surprise that quantum computing companies are publicly traded at all. While Huang has since retracted his comments (amid a market sell-off in quantum stocks), investors should take what he said very seriously, especially when looking at the relatively weak financial reports of the industry's early movers.

Rigetti's second-quarter sales actually declined 42% year over year to $1.8 million, highlighting the choppiness of its revenue streams. More alarmingly, operating losses grew 24% to $19.9 million because of high outflows related to research and development. The good news is that the company has $57.2 million in cash and $369 million in liquid investments, so it can probably sustain current cash burn for the next few years.

What will the next three years have in store?

Over the next three years, Rigetti will likely use its massive cash position to finance its quantum computing research and development. However, even in the best-case scenario, the company might be a decade away from profitability. And investors who buy now might be early to the party, especially considering how expensive shares have recently become.

With a price-to-sales (P/S) ratio of 1,100, Rigetti's stock trades at an immense premium to the S&P 500 average of just 3.3. The high price tag adds another layer of uncertainty to an already risky investment.

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