Is Rigetti Computing a Buy?

Rigetti Computing (NASDAQ: RGTI), a quantum computing company that makes hardware, software, and cloud systems for the technology, has seen its share price surge more than 1,000% over the past year. Whenever a company's stock goes like absolute gangbusters, it's worth taking a closer look and asking, "What makes this company so special?"

Sometimes, the answer is that it's not special. Perhaps investors are just following the pack or betting on a meme stock. Other times, they may be right and have seen something others didn't notice earlier. In either case, share price gains of that magnitude warrant a closer observation of the company.

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Is Rigetti special and worth buying, or are investors getting caught up in the hype? Let's take a look.

Image source: Getty Images.

Pros: Quantum computing could be significant

Artificial intelligence (AI) receives most of the attention among tech investors, but quantum computing will likely be a transformational technology across many industries, including drug discovery, materials science, climate modeling, and financial forecasting, among others.

The key aspect of quantum computers versus traditional computers is that the former can process data as either zeros or 1s, or both at the same time, which allows them to make many more calculations simultaneously.

This technology could create up to $850 billion in economic value by 2040, according to the Boston Consulting Group. Hardware and software from quantum computing, like what Rigetti produces, could be worth up to $170 billion by that time.

Some investors have latched on to this opportunity with Rigetti's stock. They may have noticed that the company has large tech customers, including Amazon and Microsoft, as well as contracts with the U.S. government, and believe they're getting a glimpse into quantum computing's potential.

Cons: Quantum computing is unproven, and Rigetti's sales are falling

Despite the upside of this technology, Rigetti faces some significant headwinds. First, the quantum computing market is still unproven. Even other companies that have their own quantum computers, like Alphabet, believe that real-world applications are years away.

That's not great news for Rigetti, and neither is the fact that the company's sales are falling. It generated only $1.5 million in revenue in its first quarter, a 52% decline from the year-ago quarter. Management has said that significant commercial sales are still three to five years away.

Meanwhile, the company is burning through a significant amount of cash, with an operating loss of about $22 million in the first quarter.

Verdict: Avoid this stock for now

To recap, Rigetti is betting on an unproven market, its sales are falling and won't be meaningful for years, and its operating losses are significant.

I think it's far too early to invest in it, especially since the company doesn't expect significant revenue for many more years. And the quantum computing market is fairly speculative right now, with companies and investors hoping for breakthroughs that are years away, if they come at all.

Even if you're optimistic about the company's potential, Rigetti's share price looks far too expensive, with a price-to-sales ratio of 272, extremely costly by any standard.

While Rigetti has the potential to benefit from quantum computing years from now, betting on this expensive stock right now is far more of a speculative move than a long-term investment strategy.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.