Should You Buy Rigetti Computing After Its 3,800% Rally Over the Past Year?

Over the past year, there have been a few stocks that have been incredible investments. If you purchased shares of Rigetti Computing (NASDAQ: RGTI) last year at this time, you would be up about 3,800%. However, that figure was nearly as high as 5,000% a few days ago before quantum computing stocks started selling off a bit.

Rigetti Computing is now more than 20% off its all-time high, and the question is: Is this enough of a pullback to buy the stock after its monstrous run? After all, this is still the early stages of an emerging quantum computing race.

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Rigetti is already selling quantum computers

Rigetti is a quantum computing pure play. This means it only has one pursuit, and that's to make a viable business out of selling quantum computers.

Unlike traditional computing, quantum computers won't be as widespread. That's because they require special cooling techniques that cool a particle to nearly absolute zero to harness quantum mechanics and perform calculations. This limits the potential in the short term, but it could be an area of innovation decades down the road, as traditional computers also used to be the same size as quantum computers are today.

Rigetti isn't alone in its pursuit of supremacy in this field. Other pure plays are vying for the same market, as well as legacy tech players that have nearly unlimited resources.

This ultracompetitive industry will result in a few losing investments, since not every company will likely survive until the technology becomes commercially viable. However, there are some signs that it could become relevant quicker than most investors think.

Last month, Rigetti announced the sale of two of its quantum computers, one to an Asian manufacturer and another to a California-based tech start-up. These sales totaled only $5.7 million, but the exact dollar figure isn't the point here.

Investors should note that these two companies likely vetted all available quantum computing options and settled on Rigetti. This shows that the company is in or near the lead in the sector right now, and that its tech has some advantages over what's currently available.

Being the first mover and grabbing early market share will be crucial. Once a client has purchased a quantum computing system, it may be difficult to get it to change due to all the nuances of such a system. So, if Rigetti can capture an early lead, as it appears to be doing now, it may be one of the best quantum computing investments over the long term.

Still, with a performance like it has had over the past year, is there any more room left to run?

There is plenty of growth left if the market is as big as Rigetti thinks

Most quantum computing companies point toward 2030 as a turning point in adoption of the technology. That means we're still five years out from seeing meaningful results, which may be too long a time frame for many investors.

Rigetti estimates that the annual value in this market ranges between $1 billion and $2 billion before 2030; between 2030 and 2040, that value rises to between $15 billion and $30 billion. That's a reasonable market projection, since it's far less than many of the hyperscalers are spending each year on artificial intelligence data centers.

Should the company capture a 25% share of the $30 billion market by 2030, it could generate $7.5 billion in annual sales. If it can generate a 30% profit margin, that would indicate about $2.25 billion in profits. An earnings valuation multiple of 30 would make Rigetti a $67.5 billion company. Its current market cap is about $14 billion, so this would point to the stock rising nearly 500% in value.

That's more than an acceptable return over the next decade, so there is plenty of room to run if its technology pans out. However, there's no guarantee of its success, and it could go to zero just as easily as it could hit the market projection laid out above.

This makes Rigetti Computing a high-risk, high-reward stock, and investors need to consider their risk tolerance. If they can stomach a huge swing in the stock price, then it could make sense here. However, I think investors can afford to be patient and wait for this stock to pull back some more first.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.