You don’t need call options or other exotic investment strategies to make life-changing returns in financial markets. Sometimes, buying a regular stock like Rigetti Computing (RGTI +6.31%) can do the trick.

With shares up by over 3,170% over the last 12 months, a $10,000 investment made this time last year would be worth a whopping $327,000 today as investors get more excited about the company’s pick-and-shovel take on quantum computing opportunity — a technology that could potentially transform the way people live and do business. But is this rally driven by hype or fundamentals? Let’s dig deeper to see if Rigetti is still a buy or if it is time for investors to take their profits and run for the hills.

Rigetti Computing

Today’s Change

(6.31%) $2.34

Current Price

$39.41

The quantum craze hits Wall Street

Quantum computing promises to dramatically boost the problem-solving ability of computers by replacing the traditional bit (which can only be in one of two states) with something called a qubit, which can be in multiple states simultaneously. Scientists have been working on it for decades. But Wall Street started really paying attention late last year, when Google released its quantum chip, Willow, capable of correcting its own mistakes and outperforming traditional supercomputers on specialized tests.

Rigetti Computing and other pure-play quantum stocks became the perfect way for investors to speculate on an industry that had previously been buried within diversified tech giants, making it hard to get direct exposure. A rising tide lifts all boats. And this industry excitement has been the main factor pushing Rigetti’s share price up this year.

When will quantum computing be ready for prime time?

On the surface, Rigetti seems to have a fantastic business model and a deep economic moat. Instead of just designing quantum chips, it is capable of building them from scratch at its foundry in Fremont, California. This vertical integration gives the company incredible control over the hardware that goes into its machines and could also open up opportunities to offer foundry services to other businesses (much like the role Taiwan Semiconductor Manufacturing Company plays in the mainstream semiconductor industry).

Rigetti’s “made-in-America” approach also fits in well with the current political zeitgeist, as the U.S. works to onshore next-generation technologies amid escalating tensions with China. This could give Rigetti access to funding, from organizations like the Defense Advanced Research Projects Agency (DARPA), which gave the company an $8.6 million grant in 2020.

There is a lot for investors to get excited about. However, some experts believe that the first commercially viable quantum computers could arrive between 2035 and 2040 — a full 15 years away in the worst-case scenario. Furthermore, Rigetti won’t be alone in the industry. It will face significant competition from other players like IBM, Alphabet, and Nvidia, which will enjoy much deeper pockets and more extensive supply chains.

Is Rigetti Computing a millionaire maker?

Image source: Getty Images.

Rigetti Computing’s recent rally has brought its market cap to a whopping $11.5 billion, which means it is no longer a cheap speculative company. It’s now a large-cap tech stock that needs to justify its premium valuation. Unfortunately, the fundamentals don’t look very impressive.

Second-quarter revenue dropped 42% year over year to $1.8 million, while operating losses jumped 24% to $19.9 million. Investors should expect Rigetti’s growth to pick up in the coming quarters because of the recent $5.7 million purchase order for two of its Novera systems. But with commercially viable quantum computing still years away, these are likely experimental purchases and not the start of large-scale demand.

With a price-to-sales (P/S) multiple of 1,100, Rigetti stock is too expensive considering these challenges, and investors should probably wait for shares to drop before considering a long-term position.