AT&T Just Expanded Its Use of D-Wave Quantum's Tech. Time to Buy This Leading Quantum-Computing Stock?

AT&T (NYSE: T) recently announced it's expanding its use of D-Wave Quantum (NASDAQ: QBTS) technology, just months after it began testing the quantum computing company's services.

AT&T said the expansion will focus on integrating D-Wave's annealing quantum computing technology into some of its artificial intelligence tools to improve network operations and outage detection.

D-Wave shareholders were understandably excited about this and pushed the stock higher on the news, but does AT&T's move make D-Wave stock a buy right now? Probably not, and here's why.

Image source: Getty Images.

Good news for the practical application of D-Wave's technology

Let's start with the good news first, because AT&T's announcement is good for D-Wave. AT&T clearly sees value in D-Wave's quantum computing technology and wants to put it to use in more applications.

The telecom giant wants to see how quantum computing can improve its outage detection and response, manage technician routing, plan new network builds, and manage traffic. This expansion comes on top of the initial results of using D-Wave's tech, in which processing times for AT&T's network optimization were reduced to just 15 seconds -- down from one hour.

AT&T's director of data science, Lucus Haugen, said in a press release that D-Wave's tech "has the potential to help us optimize faster, increase efficiency and scale more real-time operations, making quantum a practical tool for advancing how we run and modernize our network."

Practical quantum computing is a difficult goal to achieve, so AT&T saying that D-Wave's tech is useful is a big win for the company. AT&T also said that it will evaluate D-Wave's forthcoming gate-model systems for potential use in quantum security and quantum communications that the telecom giant is exploring.

In short, D-Wave's tech has already been helpful; it's now being used in additional applications and is open to further testing for more use cases down the road.

D-Wave is making good progress, but the stock isn't a buy just yet

Unfortunately, the news of AT&T expanding its use of D-Wave's technologies doesn't mean you should run out and buy shares of the quantum computing stock right now.

D-Wave is still in the very early stages of earning revenue from its tech, and even what it has earned is fairly negligible. The company had just $2.9 million in sales in the first quarter, an 81% drop from the year-ago quarter, due to a $12.6 million one-time system sale in the year-ago quarter.

Investors will get more insight into the company when it reports its second-quarter results on Aug. 6. And analysts' consensus estimates are for revenue of about $43 million, a 75% increase from the year-ago quarter.

While that's steady growth, the high price tag should give investors pause about buying D-Wave stock. D-Wave shares have a price-to-sales (P/S) ratio of 445, which is staggering given that the tech sector average P/S ratio is just 7. That's a very hefty premium to pay for a segment of the technology sector that's still in its early stages. D-Wave would have to grow incredibly fast for a long time to justify that price tag, and right now it's nowhere near that pace.

What's more, D-Wave is currently unprofitable. The company reported a net loss of $18.4 million in the first quarter, with just $2.9 million in sales. D-Wave's research and development costs more than doubled to about $26 million for the quarter, and General and Administrative costs jumped by 150% to over $20 million.

Given its unprofitability and its high price tag, D-Wave stock isn't a buy. It's worth keeping an eye on the quantum computing space, and D-Wave specifically, as practical use cases expand, but buying D-Wave stock right now still looks like too much of a risk.

Chris Neiger 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.