4 Quantum Stocks to Watch as the Next Computing Revolution Unfolds

Key Points

• The quantum computing industry is still in its developmental stage, with no clear winners in terms of profitability.
• After selloffs this fall interrupted a major rally, some investors have sought to trim exposure to the industry.
• Choosing between leading candidates like D-Wave, Rigetti, IonQ, and Quantum Computing will depend on risk tolerance and whether an investor might prioritize cash position, revenue performance, technological advances, or other considerations.

While investors with a short-term perspective might have balked at autumnal declines across the industry, those with a more bullish perspective on quantum computing stocks are likely to ride out the recent turbulence. The technology is still developing and has not yet reached a point at which it is able to transform the lives of everyday users—most quantum computing clients are governments, universities, and other large networks in search of more potent computing power. Understandably, the market's enthusiasm for quantum may ebb and flow as technology catches up with the hype.

Still, remaining exposed to quantum stocks might be a challenge for even stalwart investors in the face of sharp price drops. One option is to seek out diversification through exchange-traded funds (ETFs). Another way to manage risk might be to select a single quantum firm with the best prospects on which to focus. Here are four stocks that stand out in the sector:

D-Wave Stands Out With Cash Strength, Revenue Growth, and Analyst Optimism

D-Wave Quantum Inc. NYSE: QBTS is a strong contender for best investment in the quantum space. In a field where most firms are pursuing a similar technological approach, D-Wave has primarily taken a different direction, focusing on annealing instead of gate-model technology (although it has also broadened its reach in recent quarters).

D-Wave has one of the best cash positions among firms in the space, with well over $800 million as of the latest quarterly report. With a long path toward continued tech development, substantial funding is key.

Though not profitable, D-Wave is drawing interest from a growing customer base. Revenue—though still modest—roughly doubled year-over-year (YOY) to nearly $4 million last quarter. Bookings also saw an uptick. 

Finally, D-Wave boasts encouraging analyst sentiment.

Nearly all Wall Street analysts rating QBTS shares have a bullish outlook, and the stock is expected to recover by climbing almost 35%.

Rigetti Offers Vertical Integration, But Faces Revenue Headwinds

Quantum rival Rigetti Computing NASDAQ: RGTI is similar in size to D-Wave—both have market caps around $8 billion—and sports an attractive full-stack approach to quantum computing, essentially acting as an all-in-one provider for clients entering the quantum space.

As adoption of quantum tech surges, this approach could put Rigetti at an advantage over more specialized peers. 

On the other hand, Rigetti's fundamentals are perhaps less compelling at the moment.

Most alarmingly, revenue fell on a YOY basis in the last quarter as gross margin plummeted to 21% from 51% in the prior-year quarter.

Operating losses widened as well, thanks to an unfavorable contract mix and other factors. Rigetti does have fairly strong cash on hand at around $600 million, though less than D-Wave.

Analysts remain generally optimistic about Rigetti, assigning it a consensus Moderate Buy rating with about 22% in predicted upside potential.

IonQ Expands Aggressively With Acquisitions and Strong Capital Base

IonQ Inc. NYSE: IONQ has had a significant pullback in the last few months, dropping to around $46 per share after reaching a high above $82 in October. One area in which IonQ has excelled, however, is in its acquisitions. 

Purchases of quantum sensing firm Vector Atomic and hardware maker Oxford Ionics in the last several months have positioned IonQ to broaden its reach and achieve scale.

A $2-billion capital raise in October has helped to fuel this expansion, and IonQ remains in a strong position with regard to its balance sheet.

Meanwhile, its Tempo system achieved a major computing milestone in September, marking strong technological progress.

Despite strong fundamentals, the firm faces scrutiny over its high spend rate and ongoing losses. This may contribute to the stock's Hold rating across Wall Street, although upside potential is projected to be about 49%.

Quantum Computing Inc. Balances Deep Losses With Highest Potential Return

Experiencing the worst year-to-date performance of any of these quantum firms—as shares are down almost 42% since the start of the year—Quantum Computing Inc. NASDAQ: QUBT is perhaps the riskiest option. 

Its photonic integrated circuits have a massive addressable market and could be applicable across various industries.

However, mounting operating expenses and net losses threaten the firm.

In the last quarter, Quantum Computing achieved some balance sheet successes, including strengthening its cash position to over $350 million and improving revenue, although the latter remains minuscule at under half a million dollars.

QUBT may be appropriate for investors with a strong tolerance for risk, but investors should note that analysts are equally divided between Buy, Sell, and Hold ratings, though their price targets indicate that the stock could more than double in value.