Is D-Wave's Dip an Opportunity or Red Flag?
Key Points
D-Wave is down nearly 20% from its late-May peak.
The U.S. government plans to invest up to $100 million in D-Wave as part of a wider quantum computing initiative.
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D-Wave Quantum (NYSE: QBTS) is leaving investors with more questions than answers right now. The stock has slid close to 20% over the past month as Wall Street struggles to answer whether quantum computing can ever deliver sustainable growth and profits. Investors are wondering whether this significant price dip is an opportunity or a red flag.
The sell-off is mostly due to a shift in D-Wave's product road map. The change includes adding a gate-model quantum computing track alongside its original focus on annealing-only.
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The bulls and bears surrounding D-Wave are ultimately focused on the same thing: the technology's long-term commercial viability. Its systems are already out in the world working on difficult optimization problems, and if this trend continues, it will be a leader in the industry for a long time to come.
The bears don't believe quantum computing will see demand large enough to justify the costs. D-Wave's burn rate is increasing, and the shift in its product focus could signal indecision and a recognition that what the company is building won't be as widely marketable as it once hoped. However, analysts are generally bullish on the stock, with an average price target of $37. That's 54% up from $24 on June 30.
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Shareholders have also been selling recently, unnerving investors amid widening quarterly losses. Still, there's increasing government support for quantum computing, which could provide valuable long-term revenue and validation for the sector. D-Wave has the backing of the U.S. government, which will provide up to $100 million in funding.
The dip is an opportunity for those who remain bullish on the real-world applications for quantum computing. I would be cautiously optimistic, though, since the company is a long way from profitability. Investors in this stock need a substantial time horizon, likely at least a decade, and a hefty dose of risk tolerance. D-Wave will remain highly speculative for a while longer.
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Catie Hogan 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.
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