Quantum Computing: To The Moon

Summary:

• Quantum Computing is blasting off, up more than 948% over the past month, nearly 2,842% in the past year, and ~1,823.5% YTD as the #1 quant-rated technology stock.
• The company’s rapid trajectory accompanies a broader rally in the quantum computing industry as technological breakthroughs fuel fresh capital into the sector.
• QUBT was first Quant-Rated a Strong Buy on November 14, 2024, when it was trading at $4.40 per share – well before Wall Street deemed it a strong buy; the.
• While QUBT is the top quant-rated tech stock, investors should consider risks like high valuations and short interest in the quantum computing sector.

Quantum Computing’s Meteoric Rise

Quantum Computing (NASDAQ:QUBT) stock skyrocketed nearly 53% on Wednesday. The rally followed news earlier in the week that the photonics company won a contract with NASA to utilize Dirac-3, its entropy quantum optimization machine, to support the space agency’s advanced imaging and data processing demands. Wednesday’s boost followed 70% and 51% surges on Monday and Tuesday.

It’s the latest boost in a more than 30-day rally for the Hoboken, New Jersey-based group, which has returned nearly 945% since mid-November. QUBT’s surge followed news of a second order for its thin-film lithium niobate (TFLN) photonic chip foundry by the University of Texas at Austin and news of Amazon Web Services (AMZN) Quantum Embark program, which ignited a rally across the quantum computing industry. The SA Quant Team reiterates its Strong Buy rating on QUBT, which is up more than 2165% since upgrading the stock from a Hold to a Buy rating on November 1– several weeks before Seeking Alpha’s Quant Rating upgraded it to a ‘Strong Buy’ on November 14th.

Quantum Computing Quant Rating History (as of 12/16/24)

And while Wednesday’s market rally signified a slight decrease in altitude from Monday’s initial lift-off, the stock shows no signs of slowing down.

Quantum Computing Inc. (NASDAQ: QUBT)

• Market Capitalization: $1.98B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 12/18/24): 1 out of 549

• Quant Industry Ranking (as of 12/18/24): 1 out of 195

Quantum computing is ranked the #1 Technology Sector stock and Application Software Industry stock, and it is on the fast track to the moon.

Similar to quantum computing, Seeking Alpha Quant Ratings offers tools to simplify processes. Our Quant Ratings aim to provide an objective, unemotional, data-driven evaluation of each stock based on over 100 underlying metrics graded across five factors: Valuation, Growth, Profitability, Momentum, and EPS Revisions.

SA Factor Grades rate investment characteristics on a sector-relative basis. QUBT has scored A+’s in Growth and Momentum, B’s in Valuation and EPS revisions and Momentum, and a D+ in Profitability.

QUBT Stock’s Growth

QUBT’s growth metrics speak for themselves: forward revenue growth of 122.79%, a 2,100% difference from the 5.6% sector median, and year-over-year revenue growth of 35.61%, a 720.16% difference from the sector’s 4.3%, illustrate consistent growth and forward-looking potential alongside 7,093.16% YoY working capital growth. Stellar price performance is reflected in A+ momentum scores across the board (pictured below).

QUBT Stock’s Valuation

Despite the stock’s incredible momentum and share price increase, it maintains a ‘B’ overall valuation grade. Although its underlying valuation metrics appear less attractive, the overall grade remains a ‘B’ because not all factor grades are weighted equally. Each of the five Factor Grades and their underlying metrics are weighted to maximize predictive value, and we do not display weightings as they are proprietary information. While it may seem unclear why an overall factor grade varies from its underlying metrics, it is not an average of the underlying metrics. The underlying metrics that comprise each factor are pulled directly from financials and weighted according to our model.

Missing metrics, like those seen in QUBT’s valuation scorecard, result from figures being unavailable in the financials or if there are no longer estimates. If an NM is displayed, these metrics are “not meaningful.” For instance, certain calculated metrics cannot have negative values, and therefore displaying it would be NM. Here’s a link that offers more detail on our Quant Ratings and Factor Grades.

QUBT Q324 Results and Industry Outlook

QUBT posted strong financial results in Q3, reporting a 102% YoY increase in revenue to $101,000, a gross margin of 9%–down from 52% YoY–and total assets of $76.8 million, up from $74.4 million at the end of 2023. It is also in the final phase of commissioning its TFLN foundry in Tempe, Arizona, according to its latest earnings report, marking a key step in its goal to become a leading supplier of high-performance photonic integrated circuits and nanophotonic devices. It also announced a registered direct offering of 16 million shares of common stock at $2.50 per share on November 14, generating $40 million in gross proceeds and helping fuel the initial rally.

The company’s rapid ascent comes as a new wave of confidence and fresh capital washes over the sector. Significant breakthroughs in the sector, including Google’s (GOOGL) (GOOG) new Willow quantum computing chip, have delivered advances in QC error correction years earlier than many industry experts anticipated. Earlier this month, IBM proposed a timeline for the practical application of quantum computing, claiming that it could deliver error-free calculations in just five years – a possibility that could turbocharge investment into an industry once considered a ‘Wild West’ of technological innovation.

QUBT’s biggest rivals, Rigetti Computing (RGTI), D-Wave Quantum (QBTS), and IonQ (IONQ), have also seen their share prices take off in recent weeks, though our Quant system ranks only RGTI as a Strong Buy alongside QUBT.

Quantum Computing & Peers 1Y Performance vs. S&P 500 (as of 12/18/24)

While QUBT may still have far to fly, there are significant risks to consider before purchasing this stock.

Risks to Consider

The quantum computing market undoubtedly exhibits impressive financials, expected to grow $5.3 billion by 2029 with a CAGR of 32.7%. But sky-high valuations and significant short interest in quantum computing stocks suggest potential risks and the need for cautious investment, writes SA investing group leader Victor Dergunov.

Also worth noting is QUBT’s D+ Profitability Score, which has been weighed down by factors including a 0.00x trailing asset turnover ratio and -543.91K trailing net income per employee. QUBT was founded in 2018 and is, therefore, relatively new. Something important to remember with an emerging company like QUBT is that they have to keep reinvesting to keep up with their revenue growth. So for many emerging companies, profitability numbers won’t be high because they’re putting profits back into the business, which is okay. However, an A+-rated 807.51% capital expenditures-to-sales ratio shows that the company continues to reinvest heavily in its operations.

Concluding Summary

As the #1 quant-rated technology stock with a 1,739% YTD return, investing in QUBT is hardly rocket science. Supercharged momentum, solid earnings growth prospects, and powerful growth all drive the SA Quant Team’s Strong Buy rating. In addition to this small-cap stock, we have many other small but mighty stocks that may outperform large-caps amid the recent rally and interest rate cut news.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given that any particular security, portfolio, transaction or investment strategy is suitable for any specific person. The author is not advising you personally concerning the nature, potential, value or suitability of any particular security or other matter. You alone are solely responsible for determining whether any investment, security or strategy, or any product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. Steven Cress is the Head of Quantitative Strategy at Seeking Alpha. Any views or opinions expressed herein may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.

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• I am Steven Cress, Head of Quantitative Strategies at Seeking Alpha. I manage the quant ratings and factor grades on stocks and ETFs in Seeking Alpha Premium. I also lead Alpha Picks, which selects the two most attractive stocks to buy each month, and also determines when to sell them.