Rigetti Computing Stock: A Pure-Play on Quantum Computing
There’s been an increased amount of talk lately around what the media has coined “The Great Resignation.” People just don’t want to work anymore because they demand more from their employers. There’s talk about how 40 hours a week is just too much. It’s people of this ilk who are against meritocracies because they want to believe successful people are just lucky. On the exact opposite end of the spectrum are self-made success stories who work harder and smarter than anyone else – the rock stars.
At a startup in the late 90s, an entire development team spent 16-hour days in a windowless basement for several weeks straight to hit an impossible launch date. Not one objection was raised. Most people in that room were single, or soon to be single. You went home once a day to catch a few hours and a shower. And you drove straight back. Your every need was catered for by the charismatic project manager – coffee, candy, sodas, snacks, energy drinks, three meals a day, massage therapists, even beer and cannabis so people could unwind a bit. Every rock star in that room had stock options and wanted that golden ticket. It was a common sight in the dot-com era, a time when everyone felt an extreme sense of urgency to cash out before the music stopped. And stop it did.
Today, it’s become a whole lot easier for startup employees to see their golden handcuffs turn into real dollars. The special purpose acquisition company (SPAC) lets any team with a dream – and a cookie-cutter glossy investor deck – take their company public in a fraction of the time it takes for a traditional IPO to happen. Quantum computing startup Rigetti Computing is the latest notable name to back their assets up into a SPAC – Supernova Partners Acquisition Company II (SNII).
About Rigetti Computing Stock
Founded in 2013, San Francisco startup Rigetti Computing raised $198.5 million in disclosed funding from names like Andreessen Horowitz, Alumni Venture Group, Bloomberg, and Franklin Templeton (one of 30 DGI stocks we’re holding). The last time we looked at Rigetti was back in September 2018 when we wrote about 6 Quantum Computing Companies to Watch. Around the same time Rigetti’s CEO, Chad Rigetti, told TechCrunch that mankind was “just three years away” from when a quantum computer will outperform a classical computer. While Google tried to claim they mastered quantum supremacy the following year, many weren’t convinced.
As we noted in our conversations with 1QBit, those who master quantum supremacy are likely to keep it a secret. Regardless of whether Mr. Rigetti’s quantum prediction was right, his firm may soon hit pay dirt. The company plans to have an initial public offering soon, making it the second pure-play quantum computing stock that’s used a SPAC to go public, the first being IonQ (IONQ). In their glossy SPAC deck, Rigetti addresses the competition with charts like this one.
Unfortunately, the “number of qubits” metric tells a very small part of the story. So does the chart showing some cherry-picked performance numbers for some arbitrary workload which we can’t discern because the fine print is so small. (Most SPACs have barely discernable fine print, but Rigetti’s is completely illegible.)
Rigetti’s investor deck is largely a nothing sandwich with the only beacon of hope being the $5.54 million in revenues they brought in for Fiscal 2021.
Once the Rigetti Computing SPAC merger is finalized, investors will have two quantum computing stocks to choose from. Here’s why neither will be on our radar for at least another year.
Two Quantum Computing Stocks
At an implied market cap of $1.55 billion, Rigetti is valued roughly the same as IonQ which has a current market cap of $1.62 billion. Here’s how these companies expect revenues to grow in the coming years.
Neither company is expecting meaningful revenues until 2022. (Our methodology defines meaningful revenues as $10 million per annum or higher.) Rigetti’s deck lists around $5.543 million in revenues for Fiscal 2021, so we’re not sure why they also present a $7 million estimate for 2021. Maybe it’s in the fine print we can’t read.
As for IonQ, they’re also behind the gun right now. In our last article on the topic, Quantum Computing Stocks Are Having a Moment, we said we’d have another look once IonQ filed some proper regulatory documents. Well, they did, and here’s what the S-1 said.
Revenue increased by $0.2 million, or 100%, to $0.2 million for the six months ended June 30, 2021 from zero for the six months ended June 30, 2020. The increase in revenue was primarily driven by three new revenue contracts under which we began providing services during the six months ended June 30, 2021.
We’re told in the IonQ SPAC deck that they’re expecting $5 million in 2021. Therefore, investors should fully expect $4.8 million in revenues for the second half of 2021 or else hold management’s feet to the fire as to why those forecasts didn’t happen. The valuations being ascribed to these companies are so high that they cannot afford to fall short on their promises.
A Simple Valuation Ratio
Just to show how wildly overvalued these companies are, let’s assume they both achieve their respective revenue targets for 2022, then use those numbers to calculate our simple valuation ratio. Here’s what those ratios look like.
Market cap – $1,550 million
2022E revenues – $15 million
Simple valuation ratio = 1,550 / 15 = 103
Market cap – $1,620 million
2022E revenues – $18 million
Simple valuation ratio = 1,620 / 18 = 90
Even if both companies achieve their 2022 revenue targets, at today’s prices, both stocks would be severely overvalued. We don’t buy any stock with a valuation ratio greater than 40. From that, we can work out what the share prices would need to be for us to take another look at the end of 2022.
- RGTI – $4.44 per share
- IONQ – $3.27 per share
If either company can demonstrate meaningful revenues in a single year, and also realize a valuation ratio of 40 or less, we’ll take another look.
SPAC investors need to hold companies accountable for what they promise in their glossy decks. While Rigetti is showing more revenue progress than IonQ, both companies are not expecting meaningful revenues until 2022. Even if they hit those numbers, today’s valuations are extremely high by any measure. Revenues targets for 2022 need to be hit, and the simple valuation ratios for each stock need to fall to 40. Then, we’ll consider taking another look. Until then, we’re avoiding both stocks.
Should the merger go through as planned, shares of Rigetti Computing will trade under the ticker RGTI (the ticker will change from SNII to RGTI after the merger completes).
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