Rigetti Computing's CEO Sent an $11 Million Warning to Wall Street

A new pocket of the tech realm is increasingly finding its way onto the radar of growth investors. While semiconductor and data center stocks connected to the artificial intelligence (AI) trend remain popular, some of the hottest tickers right now belong to quantum computing stocks.

Over the last year, Rigetti Computing (NASDAQ: RGTI) has become a favorite among investors looking for exposure to quantum computing. While shares have been retreating as of late, Rigetti stock is still up by almost 2,000% over the last 12 months -- handily outpacing megacap tech darlings like Nvidia and Palantir Technologies.

These gains have catapulted Rigetti into the spotlight. Meanwhile, the company's CEO just sent a multimillion-dollar signal that investors should not overlook.

Why did Rigetti Computing stock soar?

At the moment, there are few commercial applications for quantum computing. It remains primarily an exploratory endeavor among research institutions and think tank-style technology labs.

For this reason, companies like Rigetti tend to trade on narratives and headlines. Each time the company announces a new test of its Ankaa-3 and Cepheus-1 systems, investors become excited that it could be on the brink of some sort of breakthrough, and the stock begins to tick up.

This type of positive sentiment can fuel outsized momentum, especially in a hot sector. The reality is that Rigetti has achieved very little in the way of enterprise-scale revenue growth, and the company's long-term trajectory remains questionable at best.

For this reason, upticks in Rigetti stock are often short-lived and followed by sharp declines -- moves that are detached from traditional technical readings. As of this writing, Rigetti stock is beginning to show signs of weakness: It has slumped by more than 45% from the all-time high it reached last month. It is, in short, a volatile investment.

But don't just take it from me -- Rigetti CEO Subodh Kulkarni seems to have a thorough understanding of the meme-driven mechanics fueling the stock right now.

Image source: Getty Images.

Rigetti Computing's CEO is minting profits

Generally speaking, highly compensated executives at public companies are paid via a combination of cash, stock, and stock options.

In May, Kulkarni filed a Form 4 with the Securities and Exchange Commission (SEC) that revealed that he had exercised options to purchase 1 million shares of Rigetti Computing stock at a strike price of $0.96. He sold those shares on the same day at an average price of $12 per share.

As a result of the transaction, Kulkarni booked a profit of about $11 million.

Image source: Getty Images.

Is now a good time to buy Rigetti Computing stock?

Since Kulkarni sold his Rigetti stock in late May, shares of the quantum computing pure play are up by nearly 200%. And at times in October, they were far higher. While this suggests that Kulkarni left significant gains on the table, there's a more important theme to understand here.

RGTI data by YCharts.

When a company's insiders know in advance that they're going to want to turn some of their shares into cash, and they want to avoid any indication that they're selling at a given time based on new insider knowledge or concerns about the business, they can set up what's called a Rule 10b5-1 plan. Such plans pre-schedule the sales and put their precise timing in the hands of a broker rather than the executive.

Kulkarni's decisions to exercise his options in May and then immediately sell the stock were not part of such a pre-determined plan. He made that move based on conditions at the time.

To me, his choice to sell at $12 per share suggests that Kulkarni felt that Rigetti's momentum at that time was unsustainable. It's entirely plausible that Kulkarni viewed Rigetti as overvalued and decided to cash out a good portion of his stock. As Barron's reported last month, the sale left Kulkarni with options to buy 2.7 million shares -- equal to about a 0.8% stake in Rigetti. But only about 1.6 million shares of his remaining options are already vested.

On one hand, given that the shares have risen exponentially over the last several months -- largely on a combination of hype, hope, and narrative -- imagine how Kulkarni might feel now.

Yet on the other hand, considering that the stock has plummeted by nearly 50% from its peak over just the last month, there is good reason to think the timing of Kulkarni's stock sale was savvy -- as Rigetti may well be on a crash course back toward the prices it was trading at this spring.

With the CEO -- and a handful of other insiders -- selling their stock, I am suspicious that Rigetti Computing has become a falling knife. Investors who buy the stock now, at levels far above where Kulkarni sold, could be left holding the bag.

In my view, investing in Rigetti Computing is best left to investors who can stomach outsized volatility, and who choose with clear eyes to allocate a portion of their portfolio to highly speculative investments. For investors who favor established businesses with predictable long-term runways, Rigetti stock is probably not the best choice.

Adam Spatacco has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.