Rigetti Computing (NASDAQ: RGTI), a developer of quantum computing systems, went public by merging with a special purpose acquisition company (SPAC) on March 2, 2022. Its stock opened at $9.75 on the first day, but it sank to an all-time low of just $0.38 on May 3, 2023. Rigetti's stock crumbled as it missed its own pre-merger estimates, racked up steep losses, and reeled from the unexpected resignation of its founder Chad Rigetti as its president, CEO, and director in December 2022. Rising interest rates exacerbated that pressure by driving investors away from speculative stocks.
But today, Rigetti's stock trades at about $13.50. A $10,000 investment at its all-time low would have grown to about $333,260 in less than two years. Let's see why Rigetti's stock recovered -- and whether it can soar even higher over the next three years.
Traditional computers still store data in binary bits of zeros and ones. Each data bit is either a zero or a one, with no grey areas. Quantum computers store zeros and ones simultaneously in quantum bits (qubits), which allows them to hold fractional values and process massive amounts of data at a much faster rate. For some tasks, a modestly powerful quantum computer can run circles around the fastest digital supercomputers.
Yet quantum computers are also much larger, more expensive, and tend to generate more errors than traditional computers. Moreover, it's still early days in the development of useful systems, and even the largest quantum computers today have very limited real-world use.
As a result, they're still largely used by universities and government agencies for niche research tasks. But as those systems get smaller, cheaper, and more accurate, they could be more widely adopted for mainstream computing tasks like analytics and AI.
Rigetti designs and manufactures its own quantum processing units (QPUs) for quantum computers, builds modular and nonmodular quantum computing systems, and hosts a cloud infrastructure platform for developing quantum computing applications. That one-stop-shop approach makes it a "full stack" play on the quantum computing market.
Last December, Rigetti launched its Novera QPU, a 9-qubit commercial version of its quantum computer, which cost $900,000. Big customers like the Superconducting Quantum Materials and Systems Center (SQMS), Air Force Research Lab (AFRL), and Horizon Quantum Computing in Singapore then ordered those QPUs. It also deployed its first 84-qubit Ankaa-3 quantum computing system, which can detect over 99% of its errors (its "median gate fidelity"), to support its cloud-based platform.
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Those product launches indicated Rigetti could continue to grow, even without its founder directly leading the company. Chad Rigetti is still staying onboard to focus on the company's product development, while Dr. Subodh Kulkarni -- who previously led the 3D-sensing technology developer CyberOptics -- now holds the CEO position.
This year, Rigetti plans to launch a new modular quantum computing system (which links together four of its 9-qubit chips) to create a 36-qubit system with a median gate fidelity of 99.5%. By the end of 2026, it plans to deploy a nonmodular system with more than 100 qubits of processing power and a median gate fidelity of 99.5%. It plans to launch an even more powerful 336-qubit system within the next few years.
Analysts expect Rigetti to generate just $11 million in revenue in 2024, with that figure projected to rise 41% to $16 million in 2025 and surge 127% to $35 million in 2026 as it ships more commercial systems and expands its cloud platform. That growth trajectory would be incredible -- but with an enterprise value of $3.7 billion, it already trades at 105 times its projected sales for 2026. It also won't come close to breaking even anytime soon.
That's why Kulkarni recently raised a few red flags when he said that investors should "tamp down" their near-term expectations for the quantum computing market. Nvidia (NASDAQ: NVDA) CEO Jensen Huang also recently crushed the sector by warning that "very useful quantum computers are still a few decades away."
But from 2024 to 2032, Fortune Business Insights expects the quantum computing market to expand at a compound annual growth rate (CAGR) of 34.8% from 2024 to 2032. If Rigetti merely matches that growth trajectory, it could generate $120 million in revenue by the final year. However, it's already trading at more than 30 times that rosy estimate in 2025.
I believe Rigetti will remain a volatile and news-driven stock over the next three years -- and it could easily plunge more than 90% before it's reasonably valued relative to its growth potential. So for now, I'm not convinced Rigetti will outperform the market through 2028. Instead, it will likely lose its luster as its valuations cool off to more sustainable levels.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Where Will Rigetti Computing Be in 3 Years? was originally published by The Motley Fool
