Why Are Quantum Computing Stocks Falling?

Companies can grow organically and inorganically. The former involves internally developing technology, intellectual property, products, etc., and building the business with in-house talent. Conversely, inorganic growth often refers to acquiring or merging with another company, which can be a high-risk, high-reward move. In this context, the spurt in special purpose acquisition companies (SPACs) until recently represented inorganic growth in the stock market. For example, nearly every NewSpace company that went public over the last two years merged with a SPAC – and probably none of them would have a ticker symbol if investors had not suddenly gone bonkers over blank-check companies. 

We’ve witnessed the reckoning this year: Post-SPAC valuations have fallen more than 65% in the last 12 months, according to the CNBC SPAC Post Deal Index, which tracks SPACs that have completed their mergers and taken their target companies public.

Post SPAC stock performance over the last 12 months compared to QQQ, a fund that tracks the 100 top tech stocks on the Nasdaq.
Post SPAC stock performance over the last 12 months compared to QQQ, a fund that tracks the 100 top tech stocks on the Nasdaq. Credit: CNBC

Quantum computing is another tech sector that rushed through the back door to the public markets, though with fewer options for losing your money. We count three former startups that took the quantum leap through the SPAC wormhole. Here’s a snapshot of market cap as of this week, along with 2021 and 2022 revenue through Q3-2022:

Market Cap12-month Loss2021 RevenueQ1-Q3 2022 Revenue
IonQ (IONQ)$866M75%$2.1M$7.3M
Rigetti (RGTI)$123M90%$8.2M$7M
D-Wave (QBTS)$264M75%$6.3M$4.8M
Credit: Nanalyze

As far as we know, these are the only pure-play quantum computing companies worth talking about, and they have a combined value of just $1.25 billion. We’re purposefully leaving two other companies off of this list – Quantum Computing Inc and iTech Minerals – that we’ve already vetted. You can click on the links to read about all the reasons why we would rather (to paraphrase the worldly Weird Al) spend eternity eating shards of broken glass than invest in these companies. 

The Power of Quantum Computing

Quantum computing is probably one of the toughest emerging tech sectors we cover. Indeed, all the quibbling over qubits makes us quite queasy. We’re MBAs, so we’re not going to languish over the technical details of quantum computing. You can Google it. For example, we found this early qubit prototype:

Credit: Gottlieb

The main points that investors need to know is that quantum computing could someday outperform the world’s conventional supercomputers, using the principles of quantum physics, to do stuff like design wormholes. Another way to understand it: Doubling the power of a classical computer requires double the number of transistors working on a problem, while adding one qubit can nearly double the power of a quantum computer. 

Graph showing performance of classic computer chips since 1980.
Credit: Rigetti Computing

Some of tech’s biggest companies have joined the quantum race for supremacy, including IBM, Google, Intel, Amazon, Alibaba, Baidu, and so forth. IBM is probably considered the leader of the bunch. Last month, for example, the company introduced Osprey, a 433-qubit processor that it claims is the most powerful in the world. How powerful? IBM says its machine’s number-crunching capabilities far surpass any traditional computer, saying that to match its quantum capabilities a regular computer would need more bits (the smallest units of data) than there are atoms in the known universe. That sounds pretty impressive, but did we mention that we’re just MBAs? We need to measure success through things like significant revenue growth and market penetration. 

The Payoff of Quantum Computing

The problem is that no one is really making money in quantum computing – at least not yet – but they’re definitely spending it. Let’s stick with IBM. It allocated $6.5 billion last year in R&D, and quantum computing is at the top of the company’s wish list, so it is probably pouring more money into the technology than D-Wave, Rigetti, and IonQ combined. Toward what end? The common business use cases include everything from pharmaceuticals for drug design to financial services for investment management.

Quantum computing use cases.
Quantum computing use cases. Credit: Rigetti Computing

Boston Consulting Group predicts productivity gains by end users of quantum computing, in the form of both cost savings and revenue opportunities, will surpass $450 billion annually. In the near term, revenues will remain pretty modest.

Quantum computing market potential.
Credit: Boston Consulting Group

That’s the future. We want to know how companies are making money off of quantum computing today. There’s obviously hardware sales. For instance, IBM delivered quantum computers to customers in Japan and Germany last year, though we have no idea what it charged. Presumably, they at least made money on the shipping. About five years ago, a 10-foot-tall quantum computer from D-Wave retailed for $15 million, but based on revenues (see below), they haven’t sold one of those in a while. Meanwhile, a Chinese startup reportedly started offering a desktop quantum computer for $5,000

However, the main source of revenue at this stage appears to rely on offering quantum computing as a service (QCaaS), another riff on the software-as-aservice (SaaS) model. This represents potential recurring revenues, as customers pay to access quantum computing power through the cloud. For just $1.60 per runtime second, for instance, customers can play with IBM’s 27-qubit Falcon R5 processors with a credit card or IBM Cloud credits. An interesting analysis that we stumbled across says that the average qubit-second actually costs just a nickel, so that seems like quite the gap. The same analyst claims that the sort of big-picture problems quantum computing could solve – for example, unlocking the mechanism for biological fixation of nitrogen – would cost $22.4 billion based on the 448 billion qubit seconds required to simulate the process. Maybe some problems are best left unsolved.

What is Happening with Quantum Computing Stocks?

Because it is based on the bizarre principles (such as they are) of quantum physics, quantum computers are supposedly very good at dealing with probability. While we can’t afford to compute the likelihood of whether D-Wave, Rigetti, or IonQ, will eventually succeed, it’s probably time to revisit each company to see how they have lived up to their SPACulative promises to increase revenues and reach quantum supremacy.

Can D-Wave Ride the Wave of Financial Uncertainty?

We’re not the only ones wondering where and when the revenue will start flowing. D-Wave commissioned a survey of 300 U.S. and European organizations that are developing or using quantum computing to “better understand the challenges and opportunities experienced by commercial early adopters of quantum computing.” For what it’s worth, more than 80% of survey respondents claimed that they planned to increase their investments in quantum computing in the next few years. The biggest motivators included “enhancing business process efficiencies, increasing revenues, improving research capabilities, and gaining a competitive advantage.”

Despite being the “world’s first commercial supplier of quantum computers,” D-Wave mainly generates revenue through its QCaaS platform, as well as professional consulting services. In our last article on D-Wave, we only had access to the SPAC investor deck, and the numbers didn’t add up. The latest Q3-2022 filing doesn’t add much clarity. The company recorded just $1.7 million in revenue, despite having 63 commercial customers like Volkswagen, Lockheed Martin, and BASF. It also launched its QCaaS platform, Leap, to Amazon Web Services. Customers are apparently making quantum leaps in things like employee scheduling and 3D bin packing – not exactly wormholes to wealth. 

D-Wave customer pipeline.
D-Wave boasts a big pipeline of customers but little revenue. Credit: D-Wave

D-Wave expects 2022 revenue to fall between $7 million and $9 million, short of the estimated $11 million projected in the shiny SPAC investor deck. Maybe a shift to a new pricing structure for its QCaaS offering will improve the outlook: The company is dropping the standard time-based consumption approach and switching to a revenue model focused on per-user subscriptions and application-based offerings. Time will tell, though the money is running out. D-Wave has said that additional financing may be required to fund its operations for the next 12 months, especially after only $9.5 million of the $300 million from the SPAC merger actually sits on their books today.

IonQ May Realize Meaningful Revenues in 2022

In our article on IonQ last year, we talked about the impressive bonafides of the company’s founders and early investors. However, it had not generated much revenue at the time – and we don’t invest in pre-revenue companies. Revenues are finally starting to trickle in, though certainly not at the rate promised in IonQ’s own flashy investor deck. IonQ ended 2021 with $2.1 million in revenue, which was less than half it originally estimated ($5 million). The company believes it will finish this year with between $10.2 million and $10.7 million – but had promised investors $15 million in 2022. 

The shrinking of quantum computer components.
Smaller is better when it comes to building quantum computers. Credit: IonQ

Like D-Wave, IonQ primarily makes money through its cloud-based QCaaS platform and professional consulting fees. Unlike D-Wave, IonQ has plenty of money to fund its operations, with about $555 million in cash and assets. A few months ago, it scored a $13.4 million contract to supply the U.S. Air Force Research Lab with access to tech for quantum computing hardware research, as well as to develop quantum algorithms and applications. It is also working with companies like Hyundai on a number of initiatives, including a machine learning and image recognition project. Airbus is another customer, with a project focused on optimizing cargo loading. Just be aware that 40% of revenues this year came from a related party (details on page 25 of their latest 10-Q). That was just one of the points of contention raised in the Scorpion Capital short report targeting the firm earlier this year.

On the technical front, IonQ said it increased the computational power of its Aria system, which it claims is the world’s most powerful quantum computer. (IBM might want to have a word about that.) It also recently released a new quantum computer, the IonQ Forte, which is more software centric, but you can read the technical details here

Rigetti Computing Fixed on Government Contracts

Finally, not much has changed with our original thesis that Rigetti Computing stock is a risky bet on quantum computing. Like its peers, Rigetti over-promised on revenues. This year, for example, it had projected $18 million. The guidance in Q3-2022 was between $12 million and $13 million, which would require the company pulling off a monster Q4-2022 based on the current trajectory. Apparently, $4 million is tied to contracts that are being negotiated with a government customer. As we noted in our article, Rigetti’s heavy reliance on government contracts is a big red flag for just this reason. Nearly three-quarters of its revenue so far this year is from the public sector.

Rigetti Computing's development timeline for quantum computing.
Rigetti’s tech timeline. Rigetti Computing

Indeed, the majority of its business is based on development projects that are either fixed-price milestone contracts or cost share-based contracts, which means it is pretty hard to predict revenue. The long-term goal is to develop the company’s own QCaaS business, but that’s “several years” away from happening. The company walked away from its SPAC merger with about $225 million and has $161 million remaining on their books. Based on its current burn rate of $18.75 million in Q3-2022, Rigetti has a few years of runway. Sounds like it will need every qubit second of it. Should shares start trading consistently under $1.00 a share (where it currently trades now), they’ll also have to worry about being delisted.


There are a ton of quantum computing companies competing for what is currently a limited quantity of qubit dollars. Our fixation as retail investors on finding companies for a particular investment theme means we often miss the forest for the trees. In this case, the bigger picture is that none of the investment options are appealing. We’re certainly not confident in our ability to choose a market leader, but it’s not necessarily D-Wave, IonQ, or Rigetti. In fact, the leader is probably a big tech company like IBM, which may see an opportunity in sectors like quantum computing and AI as a way to return to relevance.

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