Quantum computing firm Rigetti Computing (NASDAQ:RGTI) has been one of the best-performing stocks of the past year. On a 12-month basis, RGTI shares are up 930%, including a jump of over 40% in the last 30 days alone.
Today, let’s take a look at why Rigetti stock is going up and whether this incredible momentum has staying power.
What’s Behind Rigetti’s Soaring Price Tag?
Much of RGTI’s run over the last year can be accounted for by a more general bullish trend among quantum computing stocks.
With AI heating up the tech sector, more risk-tolerant investors are already on the hunt for the next area of technological breakthrough.
To many, the answer is quantum computing and its ability to perform at speeds up to 100 million times faster than even the best classical computers.
In conjunction with rapidly improving AI technology, quantum computers could one day quickly produce insights from vast troves of data, facilitating everything from rapid drug discovery to advanced financial modeling far beyond what’s possible today.
We can see this effect in the prices of fellow quantum computing startups IonQ (NYSE:IONQ) and Quantum Computing (NASDAQ:QUBT), which respectively are up by more than 300% and 1,400% in the past year. QTUM, an ETF that tracks companies involved in advanced quantum computing and AI innovations, has returned about 38% in the last 12 months.
In addition to ongoing bullishness on quantum computing, Rigetti has demonstrated the ability to generate at least small amounts of revenue. It brought in $10 million in 2024 and $11 million in 2023. While not especially incredible in terms of yearly revenues, the fact that Rigetti has been able to produce revenues at all as a company that’s still in such an early stage is fairly impressive and hints at commercial viability.
Rigetti’s streak of scoring strategic wins continued in Q1. In the company’s earnings report for that quarter, it revealed new initiatives with both DARPA in the US and the National Quantum Computing Centre (NQCC) in the UK. Research initiatives like this place Rigetti at the forefront of quantum development and could help the company carve out a moat for itself in the quantum computing field in the long run.
A final huge point in Rigetti’s favor as investors look for opportunities in quantum computing is the fact that the company has launched a commercially available QPU. Dubbed Novera, the ready-to-order quantum processor offers users 9 qubits and starts at about $900,000. With many quantum computers costing millions or even tens of millions of dollars, Rigetti’s Novera offering could make it a go-to hardware company for both quantum research and commercial quantum computing.
Where Has the Surge Left Rigetti’s Valuation?
While largely speculative tech stocks tend to trade at very steep valuations, Rigetti’s meteoric rise has left it looking expensive even by this standard.
RGTI shares are currently trading at over 285x trailing 12-month revenues and over 16x book value. While quantum computing might have enormous commercial potential one day, these valuation multiples also set Rigetti up for a possible fall if the market sours on the technology’s viability or the timeline on which it will enter real-world use.
The astronomically high price multiples Rigetti currently trades at haven’t deterred bullish analysts from issuing even higher price targets. At the moment, the consensus target for RGTI is $14.80. Given the most recent trading price of $11.85, this would see the shares appreciate by nearly another 25%. Even the lowest price target among the current crop is $14, implying a return of over 18%.
Is RGTI Far From Being Truly Commercially Viable?
Like the underlying causes for Rigetti’s price run, the risks the company faces are closely tied to the broader quantum computing ecosystem. While the technology is extremely promising, engineering challenges still put it a long way from widespread commercial use.
Last year, NVIDIA CEO Jensen Huang threw cold water on many quantum stocks when he predicted that useful quantum computing could still be 15 years or more away. Although Huang has since softened his stance on the technology’s timeline, his point that practical applications for it are still several years away at a minimum seems to remain in force.
As noted above, Rigetti is also trading at a valuation that could position it for a sharp fall if investors start to become more bearish on quantum computing. Such cycles of rapid gains and losses often occur around emerging technologies.
For reference, think of the hype that built up around Metaverse technology a few years ago. While quantum computing likely has more propping it up than the Metaverse did, it’s still a fairly speculative field to invest in.
Another pitfall associated with Rigetti and other quantum startups is that of competition from much larger, more established tech businesses.
Where quantum computing is concerned, Alphabet (NASDAQ:GOOGL) is shaping up to be the most important major player.
Late last year, the company unveiled its Willow quantum chip, which offers both incredible computing speed and solves some of the error correction issues typically associated with quantum computers.
Although Rigetti has made some impressive advances of its own, it may be difficult for the company to establish a competitive moat with companies as large and well-capitalized as Alphabet also trying to take the lead in quantum computing.
Is Rigetti a Buy With Prices Still Rising?
As the last month has shown, RGTI doesn’t appear to be running out of momentum. The problem, however, is that the thesis behind the stock’s nearly 10x returns over the last year is still largely speculative.
Not only could it be years before quantum computing becomes widely used for commercial applications, but there’s also no guarantee that Rigetti will be the startup that emerges as a leader in the field.
Investors with less risk tolerance who still want to gain some exposure to quantum computing’s potential may find Alphabet more suitable given that it’s already a dominant tech company and is staying at the forefront of quantum developments.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
