Is Rigetti Computing Stock a Buy Now?

Key Points

• Rigetti's sales fell 51% in the first quarter, and management doesn't expect meaningful revenue for several more years.

• The company is burning through cash and had an operating loss of $22 million in the quarter.

• Rigetti's shares have a sky-high valuation and it appears to be trading like meme stock.

• 10 stocks we like better than Rigetti Computing ›

Quantum computing has emerged as the next possible "it" trend among investors, even as we're currently in the midst of an artificial intelligence boom. Some investors may be worried about missing out on the next big thing, especially considering that quantum computing could be worth an estimated $840 billion by 2040.

That massive potential is an understandable draw for many tech investors. However, quantum computing has some significant hurdles, including overcoming a lack of practical applications. And that's on top of some of the specific growth problems companies are having, Rigetti Computing (NASDAQ: RGTI) included.

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If you're considering betting on Rigetti as it chases after quantum computing riches, here are a few reasons why you shouldn't.

Image source: Getty Images.

1. Rigetti sales are moving in the wrong direction

One important trait investors should expect to see from any company betting on an emerging tech trend is for that company to generate sales at a rapid pace. Unfortunately, Rigetti's revenue is on the decline and has been for a while.

Sales were just $1.5 million in the first quarter (which ended March 31), a massive 52% drop from the year-ago quarter. Things don't look much better if we zoom out and look at the company's revenue for 2024, which tumbled 10% to $10.8 million.

Rigetti's management said on the recent earnings call that significant quantum computing revenue could be three to five years away. That may be fine for some companies, but considering that Rigetti's stock has soared 1,300% over the past year, declining sales are a big problem.

2. It's burning through cash

In addition to falling revenue, Rigetti is spending significant sums of money to compete in the quantum computing space. Rigetti had an operating loss of nearly $22 million in the first quarter, and its cash pile is on the decline.

The company's cash and cash equivalents dropped nearly 47% to about $37 million, and with sales falling, there's no end in sight for Rigetti's cash burn.

Companies in the early stages of growth often burn through cash, so this isn't necessarily a problem on its own. But the problem is that Rigetti doesn't have any sales growth to offset all of its spending. Growth companies can spend lots of money to expand their business, but they need to be generating substantial revenue at the same time. Rigetti is failing at that second part.

3. Its valuation is sky high

Admittedly, it can be hard to value young companies taking huge bets in tech. But that doesn't mean that stocks flying high in nascent markets shouldn't be scrutinized. As such, I think it's problematic that Rigetti's stock has a price-to-sales ratio of 324, which soars far above the S&P 500's average P/S multiple of 3.

If meaningful revenue doesn't eventually come, then Rigetti's sky-high valuation may come back down to earth, or at least back into the stratosphere. As it stands right now, this stock is just too expensive, and its share price appears to be rising based on the hope of quantum computing breakthroughs.

I'm comfortable sitting this stock out, and investors who are interested in it should know that there's a considerable risk in putting their money in Rigetti. With its share price already up 1,300% over the past year and sales on the decline, Rigetti seems more like a meme stock than an investment.

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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.