D-Wave claims that its computers can solve problems in mere minutes that would take supercomputers a million years to solve – a million years in mere minutes. However, prominent research institutions aren’t buying it.
So what’s happening? Is D-Wave about to transform the world with its quantum computers? Because let me tell you something, D-Wave stock is up by around 1,300% on a 52-week scale, but it’s losing money every single quarter. Is it the perfect time to buy the stock? Or stay away from it?
What is D-Wave?
D-Wave Quantum Inc. is one of the pioneers in the quantum computing space. Currently headquartered in Palo Alto, California, they specialize in a process that’s said to solve complex optimization problems efficiently.
This allows them not even to need a quantum computer for quantum computing, but a regular rig optimized for this process. They have their system in the cloud, ensuring a wider reach. They have developed and released various products, ranging from the D-Wave One, which was released back in 2011, to the D-Wave Two, 2000Q, Advantage, and the latest Advantage2.
The company went public back in December 2020 as a means of further expanding the technology. Their clientele includes Lockheed Martin, Google, NASA, and Los Alamos National Laboratory.
Over the past year, D-Wave’s stock has been on a tear, up nearly 1,300%
Financial Health Check
In the first quarter, D-Wave’s revenue increased by over 500% year-over-year to $15 million. As a result, its gross profit also increased by 736% to $13.8 million.
However, despite the stellar revenue growth, D-Wave’s bottom line still came out as a loss of around $5.4 million. That said, if we look at the last 5 quarters, you can see D-Wave is actually pretty close to profitability.
Bullish Scenario
Now, let’s take a look at some reasons to invest in D-Wave Quantum.
First, the Sale of First Advantage System™
The company’s first quarter figures are nothing short of impressive. Its revenue exploded by over 500% year-over-year, after selling its First Advantage System™ to a significant research institution. This matters because it means clients are willing to make multi-million-dollar bets on D-Wave’s technology. Moreover, the sale provided funds for the company to continue with its quantum innovations.
Then, there’s D-Wave’s Head Start
While D-Wave’s competitors are still tinkering in their labs, D-Wave’s customers are using quantum computing right now, like today, to solve actual problems.
In a recent case, a manufacturing client (Ford Otosan) implemented a quantum application on its production line with D-Wave technology. As a result, the scheduling time for 1,000 vehicles decreased from half an hour to less than 5 minutes. That’s a huge improvement right there.
But with D-Wave, I think what’s holding the company at the moment is that quantum computing is not yet as widespread as artificial intelligence – everyone is adopting AI, while only very few are looking at quantum computing. But a widespread adoption of the technology, which I suspect will happen within this decade, could provide a massive growth runway for D-Wave.
Last but not least is the company’s Financials and Recent Development
Apart from soaring revenue, D-Wave is sitting on over $300 million in cash with a gross margin of 92.5% – that’s ridiculously high for a software business. Because of this, management says they have enough money to reach profitability without asking investors for a dime. That’s a bold claim right there, but hey, they could be right.
Additionally, D-Wave management is claiming “quantum supremacy.” The world’s fastest supercomputers right now would take a million years to perform the same calculation – a million years of calculation, D-Wave turns it into minutes.
Risks to Consider
Now, before you mortgage your house to buy D-Wave stock, this might all be too good to be true.
First, let’s zoom out for a sobering reality check. Despite its impressive Q1 financials, the company is still losing millions to keep the lights on. Even if we don’t do the math, its $300 million cushion might not last long.
What about that quantum supremacy claim? Yeah, well, not everyone’s buying it- or at least they’re questioning it. Two major institutions from New York City and Switzerland disputed the findings. That said, the thing about quantum computing is that proving you’re actually faster is incredibly hard – everyone will argue about it.
Most importantly, I think the biggest worry for D-Wave is actually its competitors. The company is up against tech Giants like Google, IBM, and Microsoft, who are also building their quantum computers. We could argue that their quantum computers aren’t ready yet, but once they are, it will be a crushing defeat for smaller businesses competing in an industry where giants are playing the ball.
Final Thoughts
D-Wave is one of the pioneers of the field of quantum computing, and investors are excited. Companies are already using D-Wave’s technology to solve real problems – that’s huge.
However, being first doesn’t always mean being the winner. I don’t intend to badmouth D-Wave, but it’s still essentially an unprofitable startup.
They might have proved that quantum computing is possible, but Microsoft, Google, and IBM might steal their lunch with superior technology and billions of dollars in the bag. Or, maybe D-Wave will end up getting acquired by the competition.
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