In recent years, the spotlight on artificial intelligence (AI) investments has overshadowed a growing interest in quantum computing, which has generated significant returns for certain stocks. Rigetti Computing, D-Wave Quantum, and IonQ have seen remarkable increases in their stock prices since January 2023, with Rigetti’s shares soaring 3,210%, D-Wave’s by 1,970%, and IonQ’s by an impressive 1,290%. However, despite these substantial gains, the quantum computing market remains minuscule and lacks the sales and earnings growth to support such steep valuations, raising concerns about a potential market correction by 2026.
Quantum computing hinges on the concept of qubits, the basic units of information that offer superior processing capabilities compared to traditional bits used in classical computing. However, current quantum technologies face challenges, notably error rates influenced by environmental conditions like temperature fluctuations and vibrations. To be useful for most companies, quantum systems are estimated to require tens of thousands to millions of qubits—far beyond the capabilities of current leading technologies.
Rigetti focuses on superconducting quantum computing and has systems featuring about 100 qubits. The company aims to launch a 1,000-qubit system by 2027. D-Wave, a specialist in quantum annealing, offers systems with approximately 5,000 qubits but is limited in running various quantum algorithms. IonQ, which uses trapped-ion quantum computing, has similar capabilities to Rigetti with its 100-qubit systems and plans for a 20,000-qubit architecture by 2028. Reports from academic institutions suggest that practical applications in areas such as drug discovery and financial risk analysis may not materialize until 2040, although some experts believe there will be utility within the next decade.
In stark contrast to AI, which is forecasted to generate a staggering $1.8 trillion in sales by 2030, quantum computing sales are expected to reach only $4.2 billion in the same timeframe. This significant disparity highlights the current limitations and nascent state of the quantum sector, which remains in its early stages of development.
Examining financial metrics reveals that the valuations of Rigetti, D-Wave, and IonQ are alarmingly high. Investors frequently use price-to-sales (P/S) ratios to assess companies that are not yet profitable. Rigetti’s P/S ratio sits at an eye-popping 928, with a projected revenue growth of 124% annually through 2027. D-Wave follows with a P/S ratio of 362 and a projected growth rate of 69%, while IonQ stands at 150 times sales with a forecasted growth of 84%.
This sharp increase in stock prices has led some to draw parallels with Nvidia’s rise during the mid-2010s, suggesting that early investment in quantum technology could be similarly lucrative. However, the fundamental difference lies in valuation; Nvidia’s average P/S ratio was a mere 2.8 in 2015, making it significantly cheaper than the quantum companies today, which are trading multiples higher than industry averages. For context, the most expensive stocks in the S&P 500 currently average around 55 times sales, meaning Rigetti would need to decline by 94% just to reach that level, D-Wave by 84%, and IonQ by 63%.
As quantum technology holds potential for transformative advancements in various fields, the market appears ripe for a reckoning given its lofty valuations despite the long timeline until widespread practical application. Experts are cautioning that without supportive fundamental growth, the current valuations for Rigetti, D-Wave, and IonQ bear the hallmarks of a market bubble poised to burst, possibly as soon as 2026.
