Rigetti Stock: A Long-Term Quantum Play Facing Short-Term Tests

Key Points

• Rigetti Computing posts mixed earnings with in-line revenue and smaller-than-expected loss.
• Company unveils industry’s largest multi-chip quantum computer with improved error rates.
• Short-term stock gains may be fueled by short covering, with key resistance at $17.

Shares of Rigetti Computing Inc. NASDAQ: RGTI are down more than 2% the day after the quantum computing company delivered a mixed earnings report. Revenue of $1.8 million was roughly in line with expectations for $1.87 million.

The -5 cents earnings per share (EPS) came in 1 cent better than the 6-cent loss analysts had forecast. However, the company also reported a substantial year-over-year (YOY) operating loss.

The important thing to remember about investing in Rigetti is that this is a long-term technology story that is being heavily influenced by short-term momentum traders. Here’s what both camps need to know.

The Quantum Story Is Still in the Early Stages

There are several reasons to be bullish about quantum computing stocks and Rigetti in particular. But the company is not profitable, and that’s not expected to change anytime soon. Rigetti reminded shareholders of its economic situation with a $350 million capital raise through its ATM equity program.

However, that does leave the company with over $570 million of cash on its balance sheet with no debt to fund its ongoing research and development. The company believes it has enough cash for at least the next 12 months. Nevertheless, it’s a reminder that risks exist in this sector.

Rigetti Made 2 Significant Announcements

For speculative investors holding on to RGTI stock for the long term, progress is important. To that end, Rigetti had two notable announcements in its quarterly report.

First, the company released the industry’s largest multi-chip quantum computer, the CFS-1360, which achieved 99.5% median two-qubit gate fidelity and a 2x reduction in error rates versus its prior system.

Investors also know that Rigetti is pursuing a multi-chip approach and expects to deploy a 100+ qubit chiplet-based systems at 99.5% two-qubit fidelity by the end of 2025. The company is also forecasting quantum advantage in approximately four years with over 1,000 qubits, 99.9% fidelity, faster gate speeds, and error correction.

Commercial Adoption Is Years Away

One risk for long-term investors is the time it will take for quantum computing to move past the conceptual stage. Right now, virtually all of Rigetti’s revenue is tied to U.S. government contracts. That’s because the technology is still in the experimental stage and governments are the ones with willingness to take on the financial risk.

To move beyond the government sector, quantum computing companies will have to show:

• A demonstrable commercial advantage to classical computing; this means the ability to provide repeatable, stable performance with real-world workloads

• An accessible platform that can be integrated with major cloud computing providers

• Industry-specific proof of concepts that deliver cost savings or performance boosts compared to high-end classical computing

• Lower costs and improved reliability

None of these hurdles is insurmountable for Rigetti or other quantum computing companies, but Rigetti management has said they will be in the research and development stage for about four years. That tracks with analysts' forecasts that it could take between three and five years for quantum computing companies to start generating even a portion of income from commercial customers.

Short Interest May Give Bears a Short-Term Upper Hand

Heading into earnings, short interest in RGTI stock was over 17%. Although it was down nearly 4% in the past month, it’s still at a level where it can have an outsized influence on the stock price. 

For example, RGTI stock was moving higher before the earnings report, moving above its 20-day SMA and closing at $16.20 on heavy volume. But momentum indicators suggest that short traders may have the upper hand.

The MACD remains positive but is flattening, hinting that upside strength could be fading without fresh catalysts. Traders should watch the $17 level closely. This has been a point of resistance twice this summer.

A decisive breakout could target the $18.50 to $19 range, while failure at this level risks a pullback toward the mid-$15 support zone. If the sell-off increases, traders should eye the $14 level, which was a point of resistance earlier this year but may now act as support.