Rigetti Computing Stock: A Pure-Play on Quantum Computing
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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.
- IonQ
Market cap – $1,550 million
2022E revenues – $15 million
Simple valuation ratio = 1,550 / 15 = 103 - Rigetti
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.
Conclusion
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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A UK start-up says it has made one of the world’s smallest quantum computers.
Orca Computing, founded two years ago by Oxford academics led by Prof Ian Walmsley, whose work on photonics is at the heart of the company, says its novel approach will make quantum computing more commercially viable.
Chief executive Richard Murray plans to demonstrate the device at an industry event later this year.
“Firstly, it’s not cryogenically cooled, it’s all at room temperature.
“And you’ll also see it looks a lot like a normal computer would – it’s a rack-mounted system, it looks very unspecialist.
“Our approach uses single photons, so single units of light.
“And the great thing about single photons is that they don’t interfere with the outside environment.”
PsiQuantum is also said to be using photonics, and they’ve raised $665 million at a current valuation of $3.15 billion: https://nanalyze.com/2021/08/quantum-computing-stocks/
Then there’s that graphite mining cum quantum computing mess of an Aussie company – Archer Materials is it? – that says they’ve built a room temperature chip. (Rolls eyes.) Come to think of it, that’s actually being worked on right now by our research team. What they’re finding is an absolute dog of a stock we wouldn’t touch with a ten-foot pole. Not surprised there, so stay tuned for that report.
In July, PsiQuantum, based by British physicists in Silicon Valley, and dealing in stealth till lately, raised $450m from buyers resembling BlackRock and Baillie Gifford at a valuation of greater than $3bn for its bold plan to construct a commercially viable quantum laptop by 2025.
A month earlier, Honeywell agreed to inject $300m into its quantum unit after merging with the UK’s Cambridge Quantum Computing, with its chief govt leaving open the opportunity of going public.
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See interesting article: “Quantum computing comes out of shadows into public markets” – originally on FT
Both of these firms merit watching, and we’ve covered both recently in this piece: https://nanalyze.com/2021/08/quantum-computing-stocks/
Let’s see if Rigetti and/or IonQ can achieve meaningful revenues in 2022 as they have promised investors.
You’re valuing this like it’s $CLX. This isn’t a CPG company – it’s a moonshot. See $TSLA.
No, it’s not even remotely comparable to CLX, or Tesla for that matter. We don’t invest in companies without meaningful revenues. Period. That’s not a lot to ask. When a company does have meaningful revenues, we’ll then consider it as a possible investment. That simple rule helps us avoid loads of landmines.
IBM is worth a consideration as a vialable stock for quantum computing investing. IBM is a leader in quantum computing. On the other hand IBM appears now as a value stock, after successful completion of Red Hat acquisition and is becoming a growth stock.
16th Nov 2021 news:
IBM Quantum unveiled Eagle, a 127-qubit quantum processor. Eagle is leading quantum computers into a new era — we’ve launched a quantum processor that has pushed us beyond the 100-qubit barrier. We anticipate that, with Eagle, our users will be able to explore uncharted computational territory — and experience a key milestone on the path towards practical quantum computation.
For next year they are planning 433-qubit quantum processor.
We’ve been watching IBM develop quantum computing for years now. They’re not a quantum computing stock by any stretch of the imagination. We’re holding IBM for dividend growth reasons, not for quantum computing reasons. Good old IBM. Planning to plan.
Rigetti has 31 qubits in its processor. IBM has now 127 qubits in its Eagle processor. Next year IBM will have 433 qubits in its Osprey processor and in 2023 IBM will have 1121 qubits in its Condor processor.
This piece explains why looking at qubits alone isn’t sufficient: https://nanalyze.com/2019/04/quantum-computing-software/
Rigetti has announced it is exploring experimental new hardware configurations that could improve the performance of its quantum processors.
As explained in a blog post, the firm has introduced a third energy state to its qubits, thus turning them into qutrits. According to Rigetti, doing so allows for significantly more information to be manipulated, while also decreasing readout errors by up to 60%.
Rigetti contends that the addition of a third state to qubits, creating a three-level quantum system based on qutrits, represents another path to improving the performance of quantum machines.
“With carefully-chosen readout parameters, classification performance can be significantly better when choosing between | 2> and | 0>, rather than the default classification between | 0> and | 1>,” the company explained.
We’ll be looking forward to seeing these PR blog posts translate into revenues. At any rate, it’s a big nothing sandwich for investors until the deal closes, and there’s no guarantee it will. Once that happens, we’ll take another look when some proper financials are filed.
Here’s a thought: no revenue = no invest. Period.
Geez….
You would think that simple rule would be a good way to avoid all the landmines out there but we constantly find people who object to it. We do not invest in “teams with dreams,” we invest in companies with product market fit as evidenced by at least $10 million per annum from unrelated parties. We’re not interested in funding someone’s R&D aspirations.
D-Wave Systems will also go the SPAC route, merging with DPCM Capital. The ticker will change from XPOA to QBTS if the deal closes. So we’ll have three pure play quantum computing stocks. Same caveats apply as for IonQ and Rigetti, I guess.
Thank you for the comment. We’ll be covering D-Wave soon.