D-Wave: Time to Buy the Dip? Or is the Fall Just Starting?

Key Points

• D-Wave Quantum shares are down more than a third in the last month following a major, drawn-out rally.
• Investors have turned away from the quantum computing industry more broadly in recent weeks as profitability and marketability concerns persist.
• Insider sales of QBTS stock are another signal that D-Wave may have further to fall before it recovers.

Although the final hours of the Nov. 17 trading week were a bright spot, quantum computing firm D-Wave Quantum Inc. NYSE: QBTS generally failed to reverse its share price cooldown, which had been ongoing for the most part throughout the month.

Despite one-year returns of more than 600%, the past month has seen D-Wave shed more than a third of its market value. To be sure, D-Wave is not alone, as many quantum computing firms have experienced a sharp decline in recent weeks, and the wider industry has struggled significantly as the year comes to a close.

Still, investors want to know: Is D-Wave's downward trend in the last several weeks indicative of a widespread cooling of the much-hyped quantum market? Or is this a rare opportunity to catch a company that has been on a meteoric rise at a modest price point?

Based on factors such as profitability concerns, uncertainty surrounding commercial viability, and insider selling activity, it is becoming increasingly challenging for quantum bulls to argue that D-Wave will return to rallying anytime soon. 

D-Wave's Earnings Lull Lingers

Early in November, D-Wave reported third-quarter earnings results that were better than expected on multiple fronts—earnings and revenue exceeded analyst predictions, liquidity remained strong, and promising new contracts were either recently announced or widely anticipated. Still, shares dipped, as investors had hoped for a surer sign of D-Wave's path to profitability.

Unfortunately, the rest of the month has done little to reassure investors that profitability is on the horizon. D-Wave has been relatively quiet regarding investor press releases. Executives may have signaled optimism about the company's future as D-Wave completed its redemption of public warrants in the middle of the month. But for the time being, investors will have to wait for clearer signs that the company is on track for profitability. 

The Gap Between Technology and Anticipation

Investor anticipation has driven massive rallies in the quantum industry. Now, many of those companies have surged to inflated valuations without the technology keeping pace with those expectations—and share prices may deflate as a result. 

For now, quantum computing remains largely the domain of governments, research institutions, and large enterprises, with limited visibility into when or how the tech will reach broader commercial applications.

It's not that quantum technology will never be able to transform day-to-day life for everyday people; it's just that it has not yet reached that point.

Furthermore, it's unclear how the industry will continue to evolve—and whether companies that specialize in quantum, such as D-Wave, will ultimately be outpaced by long-standing tech giants with a quantum arm.

Insider Selling Activity Is the Latest Warning

Many investors like to follow the cues of company leadership when it comes to buying and selling shares. When executives buy or hold their company stock, it may signal they have confidence in the future performance of those shares. D-Wave may be in the opposite position at this point, as CEO Alan Baratz and CFO John Markovich have both sold hundreds of thousands of QBTS shares in the last several weeks.

All of this is not to say that D-Wave is guaranteed to continue its decline. A strong technological breakthrough, news of additional significant sales or contracts, or an announcement that the company is allocating its substantial cash reserves toward a sizable acquisition could all be the motivation investors need to begin pushing the price of shares upward once again. Still, the longer the company's downward trend persists, the more challenging it may be to break momentum.