Where Will Rigetti Computing Stock Be in 5 Years?

Every few decades, a new technology hits the scene, transforming the way people live and creating billions -- if not trillions -- in shareholder value. Most recently, this has included generative artificial intelligence (AI) and the internet. Some analysts believe quantum computing could be the next big leap, putting early movers like Rigetti Computing (NASDAQ: RGTI) in a position to benefit substantially over the long term.

That said, it remains unclear how the quantum story will play out over the next five years -- or if Rigetti's deeply unprofitable business will even last that long. Let's dig deeper to find out what the future might hold.

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What is quantum computing?

Quantum computing is a field of computer science and physics that aims to dramatically increase computational power by replacing traditional bits (which can only represent one of two states) with quantum bits or qubits, which can exist in multiple states simultaneously. If it works, it could set the stage for devices capable of solving the most challenging problems millions of times faster than today's strongest supercomputers.

This technology will have massive financial implications in drug discovery, materials science, and logistics. Analysts are hugely optimistic. McKinsey & Company estimates that capable quantum systems could be available as soon as 2030, with the market being worth a respectable $100 billion in a decade (up from $4 billion in 2024). Rigetti Computing is trying to get in on the ground floor of this long-term opportunity.

Does Rigetti Computing have what it takes?

Founded in 2013, Rigetti Computing is a mid-cap tech company specializing in designing and building quantum computing hardware (chips and processors). It takes things a step further through its Quantum Cloud Services (QCS) platform, which aims to allow clients to access this processing power remotely with their classical computer systems.

If things go well, Rigetti can position itself to potentially become the Nvidia of quantum computing -- providing the infrastructure other companies will need to create value for their businesses. However, first-quarter earnings suggest meaningful commercialization is still far away.

Image source: Getty Images.

Revenue declined 52% year over year to $1.5 million. And this trend is mainly because Rigetti is currently dealing with "lumpy" revenue streams like one-off government or academic contracts instead of sustained commercial subscriptions. Operating losses jumped from $16.6 million to $21.6 million, and most of this is coming from research and development (R&D) spending that it probably can't reduce without risking its competitiveness.

With $209.1 million in cash and short-term investments, Rigetti can sustain these losses for many more quarters before turning to outside sources of capital like equity dilution. However, many analysts don't expect quantum computing to hit the mainstream until 2030, so it's just a matter of time.

The risks seem to outweigh the rewards

Rigetti isn't profitable, so it can't be valued based on earnings. However, with a price-to-sales (P/S) ratio of 260, shares are expensive compared to the S&P 500 index average of just 3. While Rigetti is an early mover in a potentially transformative technology megatrend, success is far from guaranteed. And it is unclear where the company will get the millions, if not billions, in capital it will need to make it to commercialization.

The market also seems to underestimate the competition. Rigetti spent just $15.4 million on R&D in the first quarter. This is a drop in the bucket compared to Alphabet or Nvidia, which spent $13.56 billion and $3.99 billion, respectively. While not all of that money went to quantum-computing-related research, these better-capitalized companies look more likely to be the ones to achieve breakthroughs in that field over the next five years.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.