Should Investing in Quantum Computing Stocks Be Considered Today?
In recent months, a new trend has emerged in the artificial intelligence (AI) sector. Quantum computing has caught the interest of investors, and numerous companies aiming to commercialize and advance this innovative technology have seen notable increases in their stock values.
One such company, aptly named Quantum Computing (QUBT 0.70%), has gained attention lately: Over the past three months, its shares have skyrocketed by about 2,400%. Despite the potential of quantum computing in the overall digital landscape, there are several uncertainties regarding Quantum Computing (the company). Is it on the brink of playing a significant role in AI's next significant trend, or should it be avoided for now?
Quantum Computing's curious background
Given Quantum Computing's rapid stock increase in such a short period, it's unusual and even more so when the company in question is not well-known. After investigating some of Quantum Computing's filings with the Securities and Exchange Commission (SEC), I have some valid concerns.
Quantum Computing was founded in 2001 under the name Ticketcart, primarily selling ink-jet cartridges for printers manufactured by Canon and Hewlett Packard. In 2007, Ticketcart pivoted its business after acquiring Innovative Beverage Group and changing its name to Innovative Beverage Group Holdings (IBGH). IBGH then focused on beverage distribution.
By 2013, IBGH had ceased operations and was later sued by a prominent shareholder who claimed that management had allowed the company's assets to be squandered. After settling legal issues in 2018, the company rebranded itself as Quantum Computing Inc. Four years later, in the summer of 2022, Quantum Computer acquired QPhoton, a developer of systems and technologies in the quantum photonics space. It's now mainly operating in this area, but with little tangible revenue-generating contracts.
While even the largest corporations may find themselves involved in lawsuits periodically, these cases typically involve intellectual property or related issues.
Pivoting from one significantly different idea to another does not inspire confidence, and I find IBGH's decision to change its name to Quantum Computing strikingly similar to Long Island Iced Tea's shift to rebranding itself as Long Blockchain during crypto's surge in popularity nearly a decade ago.
Does Quantum Computing's valuation make sense?
If the previous points haven't raised your eyebrows, you should examine this stock chart.
Just a year ago, Quantum Computing was an unconventional penny stock. As I write this, shares are currently trading for $16, and the company boasts a market cap of $2.1 billion.
Quantum Computing's stock simply didn't take off until about three months ago. During this period, the company has experienced abnormal valuation expansion, and its shares have become increasingly pricey.
Just how expensive? Given that Quantum Computing's trailing-12-month revenue is around $386,000, its price-to-sales ratio is approximately 5,400.
Investing in quantum computing systems requires substantial capital investments in research and development, as well as engineering talent. Given Quantum Computing's minimal revenue, it's highly probable that the company will be burning through cash for some time soon.
By utilizing its soaring stock price to conduct secondary offerings and raise capital, the company could dilute the holdings of current investors. Those who invest at the current valuation would be the most impacted by this. Quantum Computing raised $14.6 million through this strategy in the first three quarters of 2024. Future rounds of capital raising may be burdensome.
Should you invest in Quantum Computing stock?
When AI emerged as the market's next significant trend a few years ago, shares of a company called C3.ai saw a remarkable increase. I personally believe that one reason for the surge was due to the company's ticker symbol being "AI."
Back in 2014, Google purchased Nest Lab, which manufactured smart-home appliances like thermostats. On the day plans for the acquisition were announced, shares of a penny stock named Nestor skyrocketed. The reason? Novice investors confused Nestor's ticker symbol ("NEST") with the company Google was acquiring.
I bring these examples up because it's crucial to realize that on occasion, unsophisticated investors link hints that may not truly be there. While the notion of quantum computing is intriguing, Quantum Computing appears to be gaining from an enticing narrative and the serendipity of having the same name as emerging technology in the AI sphere.
I advise against investing in Quantum Computing stock. The valuation of the company is stretched, and given its questionable corporate history, it's challenging to predict what unforeseen developments may lie ahead.
The text discusses the rapid increase in Quantum Computing's stock price, despite the company's questionable corporate history and lack of tangible revenue-generating contracts. This has raised concerns about its current valuation, which stands at a price-to-sales ratio of approximately 5,400, given its trailing-12-month revenue of around $386,000. The text also mentions that investing in quantum computing systems requires substantial capital investments, and given Quantum Computing's minimal revenue, it's likely to burn through cash.
Here are two sentences that contain the words 'finance', 'money', and 'investing':
Given Quantum Computing's questionable corporate history and the substantial capital investments required for quantum computing systems, some investors may question whether it's a wise decision to invest their money in the company at its current valuation.
The high price-to-sales ratio of Quantum Computing's stock suggests that investors are placing a significant amount of faith in its potential future earnings in the field of quantum computing, an area where substantial financial risks are involved.
