Rigetti Earnings Reveal the Risks and Rewards of Quantum Computing — Barrons.com

By Mackenzie Tatananni

Competition continues to build in the quantum-computing sector with the field seemingly more uncertain than ever. As smaller companies like Rigetti Computing refuse to temper their ambitions, Wall Street has been brewing with opinions on whether investors should hedge their bets or go all in on the underdogs.

Rigetti's fourth-quarter earnings report painted a stark picture of the reality facing quantum pure plays. The company posted revenue of $2.27 million for the December quarter, a sharp decrease from the $3.38 million reported a year earlier, while its operating loss widened to $18.5 million from $17.2 million in 2023.

Shares tumbled 6.9% to $7.62 on Thursday, underperforming the S&P 500, which was down 1.4%, and the tech-heavy Nasdaq Composite, which was down 1.7%.

As Rigetti fell, peers traveled lower with it. D-Wave Quantum declined 7%, Quantum Computing fell 6.9%, and IonQ saw the largest decline, down 7.8%.

Rigetti was the second quantum pure play to go public in February 2022, after IonQ in 2021. The company released its first commercially available quantum processing unit, the Novera QPU, at the end of 2023.

While Rigetti's quarterly report may seem jarring, it should come as no surprise to investors following the sector. Rigetti, IonQ, and other quantum pure plays are early in their lifespan, burning through cash and bringing in little revenue as they work to develop quantum technology.

The report wasn't all doom and gloom, either. While revenue continued to decline sequentially, the company made two sales of its Novera chip, one each to Montana State University and the U.K. government in the fourth quarter.

Rigetti maintains that it is on track to achieve a 36-qubit processor consisting of four 9-qubit QPUs tiled together by mid-2025. Qubits, or quantum bits, are the basic units of information in a quantum system, analogous to bits in classical computers.

Rigetti also anticipates that it will be able to expand to a tiled system of more than 100 qubits by the end of the year.

CEO Subodh Kulkarni highlighted a recent collaboration with Quanta Computer, saying it would strengthen Rigetti's position in a "flourishing market."

On Feb. 27, Rigetti announced that it had agreed to a strategic partnership with the Taiwanese server manufacturer to accelerate quantum-computing manufacturing and time to market.

The partners plan to invest more than $250 million each over the next five years. Rigetti's investment will remain tied to the research and development of quantum chips.

Quanta Computer also agreed to invest $35 million in Rigetti through the purchase of common shares. The transaction awaits regulatory clearance and should be approved over next few months, management said.

Needham analysts led by N. Quinn Bolton maintained a Buy rating on Rigetti stock following the company's latest earnings report. The analysts highlighted Rigetti's approach to quantum development, which centers on the production of scalable, multi-chip processors that are made and housed in its Fremont-based fabrication facility.

The analysts also pointed to key milestones on the horizon, as two federal initiatives are expected to gain ground this year.

One is the Department of Energy Quantum Leadership Act of 2025, a bipartisan measure that would authorize more than $2.5 billion in funding over five years. The bill, which is intended to catalyze quantum research and development, was introduced to the Senate in mid-February.

Already in progress is the Quantum Benchmark Initiative from the Defense Advanced Research Projects Agency, an offshoot of the Department of Defense. The program aims to determine if any quantum-computing approach can achieve utility-scale operation, with a computational value exceeding its cost, by 2033.

Needham analysts believe Rigetti is "positioned as a primary beneficiary of advancements in the quantum-computing industry that are inevitable in the near and long-term."

While there is obvious risk tied to quantum stocks, the analysts remain confident that Rigetti's partnerships and customer relationships will open the door to "newer, larger opportunities as technology scaling continues."

But it's a long road ahead. As Yardeni Research strategists noted, the advancement of quantum-computing capabilities is shaping up to be "a game changer for the big guys" such as Amazon, Alphabet's Google, and Microsoft, while most smaller companies remain unprofitable.

In addition to the present threat of tariffs, which has driven significant volatility in the tech sector as well as the broader market, Yardeni Research pointed to another risk factor: intensifying competition overseas.

There is a question of whether the U.S. will emerge victorious as the leader of the quantum race as China draws further ahead, similar to the battle for dominance in artificial intelligence.

Just this week, researchers at the University of Science and Technology of China introduced a quantum-computer prototype called Zuchongzhi 3.0. The prototype boasts 105 qubits and can perform some tasks one million times faster than Google's Sycamore processor, the scientists claimed in a CCP-controlled publication.

There has been progress in Europe as well, with Finnish company IQM Quantum Computers announcing a 50-qubit system on Monday, and Dutch startup QuantWare pioneering new chip architecture that allows for more qubits.

Then there's the matter of ramping competition at home. Amazon and Microsoft separately unveiled quantum chips last month, just days apart.

It is difficult to predict the trajectory of quantum pure plays, which remain in their infancy. Yardeni Research, for one, is betting on the bigger players.

"Conversely, small start-up quantum-computing companies have watched their stocks tumble YTD, as they are racking up losses," strategists wrote. "In this David vs Goliath tale, it looks like Goliath may win."

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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