D-Wave Quantum Today
- 52 week range
- $0.98
▼
$41.97
- Price target
- $20.27
Like much of the quantum computing industry, D-Wave Quantum Inc. New York Stock Exchange: QBTS He had recently been on a high flight. Shares are up more than 243% year to date and have nearly doubled in the past month alone. These gains pale in comparison to the stock’s nearly 3,200% rise in the past year.
With an almost comically high P/S ratio of 1,279.8, D-Wave could be among the most popular stocks currently available to investors.
The question on Wall Street and among retail investors is to what extent D-Wave’s fundamentals support this impressive performance. Earlier this year, prominent short-selling firm Kerrisdale Capital led a campaign against D-Wave, giving short sellers everywhere fodder to argue against the company’s business and technological potential.
Several months later — and about 200% in revenue — it’s reasonable for investors to have concerns about D-Wave’s commercial potential even as the company bolsters its technology case.
But the bigger issue for investors may be the massive rally itself, which has left analysts across Wall Street suggesting that QBTS shares are likely to correct before too long, and may have also contributed to the recent Zacks rating downgrade.
Answering the question about the breadth of possible annealing
The argument made by D-Wave is that the company’s quantum annealing technology has limited potential because of its specific focus on optimization problems, rather than a more general approach to problem solving.
D-Wave has been able to alleviate some of these concerns Announcements about projects aimed at developing portal modeling technologyan alternative to steel. D-Wave appears to be taking a technologically diversified approach to avoid painting itself into a corner that might put it at a disadvantage compared to peers who focus on other types of quantum technology.
At the same time, investors outside the quantum industry are likely to often lack appreciation for the potential of even relatively narrow technology such as annealing, the benefits of which are only beginning to show in real-world examples.
In the past few months, D-Wave has announced successful partnerships, including with agricultural software company Verge Ag, Japan Tobacco, and North Wales Police in the UK. Each provides new evidence of the many applications of quantum annealing and D-Wave’s success in meeting customer needs across a range of industries.
Marketing potential remains largely untested
However, D-Wave’s commercialization potential remains more uncertain than the possibilities suggested by its technological achievements. In the most recent quarter, the company posted larger-than-expected losses per share as adjusted EBITDA losses rose 44% year-over-year (YOY) amid increased operating expenses. The bright spot in the company’s earnings has been its revenue growth, thanks in large part to a growing portfolio of projects and sales of its Advantage2 quantum system.
However, although year-over-year revenue increased by approximately 42% during the quarter, revenue was still devastatingly low in absolute terms at just over $3 million.
The company has had some early success commercializing its quantum technology, although far less than what most investors seek to maintain its valuation and momentum. This is where the short seller’s case against QBTS gains strength: D-Wave is significantly overvalued by almost any measure given its earnings and sales history. It’s no wonder that analysts as a group expect the stock to fall nearly 40%.
D-Wave isn’t the only one that has seen a huge rise in the past year – its competitor, Rigetti Computing Nasdaq: ROG It has risen even more quickly, with returns of more than 5,100% over the same period.
But many participants in the quantum space could risk overestimating their value while posing a legitimate threat to the competition for D-Wave. Rigetti’s recent announcement of a contract with the US Air Force Research Laboratory is one of several developments for the D-Wave competitor that is increasing pressure on QBTS.
With most quantitative-focused companies moving as a group while investors still find it difficult to define them, successes across the industry are contributing to what appears to be an ever-rising group of stocks.
However, over time, it is likely that one or more companies will emerge as leaders – investors must decide whether D-Wave is likely to be in this category or if it may fall by the wayside.
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