D-Wave’s Quantum Leap: Brilliant Bet or Bubble Waiting to Burst?

D-Wave stock is up 1,600% in a year…
And it still doesn’t make money.

But Wall Street? They’re calling it a Strong Buy with as much as 83% upside.

D-Wave just raised $400 million in two weeks.
It has a quantum computer with 4,400 qubits ready right now.

But the company’s still bleeding cash  $43 million last quarter, and trades at 600x sales.

So what’s driving this? Hype? Hope? Or is this the AI moment of quantum computing… just 10 years early?

I’ll tell you what I’m watching and what needs to happen before I call this a strong buy.

Let’s get into it.

D-Wave’s Quantum Overview

D-Wave Quantum is a pioneer in quantum computing that specializes in developing gate-model computers and annealing systems that, unlike its competitors, are ready for use. 

The company just launched its headline product, Advantage 2 Quantum Computer, which is its most advanced system to date. It would enable its partners, such as Los Alamos lab and Julich Supercomputing Center, to achieve greater feats and discoveries through its powerful computing equipment.

Stock performance

D-wave stock is currently $16.38, and has traded between $ 0.75 and $20.56. That’s quite the ride over the past year, though it seems the stock is trading toward the upper end of that range.

The stock has a Strong Buy rating consensus from 9 Wall Street Analysts, a sentiment that looks to be strengthening just recently. The stock price has a high target of $30, which suggests as much as 83% upside in the stock over the next year.

Performance wise, the stock is up 95% year to date and nearly 1600% over the past year – that’s absolutely incredible. So, why exactly is D-Wave skyrocketing?

Why It’s in the Spotlight

D-Wave landed on many investors’ radar after a successful completion of a $400 million at-the-market equity raise in late June. The offering lasted for two weeks and was completed at an average price of $15.18 per share, adding to its $150 million raise in January. Yes, there were dilution concerns, but the event brought D-Wave’s total cash reserves to approximately $815 million. 

So with all that cash, let’s see how they’re doing.

Financials

According to the company’s first-quarter financials, sales rose 508% to $15 million. However, it is still unprofitable as net losses reached $5.4 million. I guess, a silver lining is that the net loss shrank 68.7% year-over-year, which is excellent considering the extra income.

That said it does not mean that it will be profitable in the next quarter, which could spark fear, uncertainty, or a selloff.

Now let’s talk about cash. Cash is king, right? At D-Wave, the business keeps running thanks to equity financing, which jumped 322.9% from the same quarter last year. Also similar to the previous year, the company is still burning cash, with operating cash flow coming in at a loss of $43 million.

If this trend continues over the next few quarters or years, the business might have to fold… but we’re not there yet. There are still lots of catalysts. 

D-Wave is set to report its second-quarter results. As an investor, I’m looking for improvement in both the top and bottom lines.

But can they do it?

Growth Catalysts

Well, let’s see. 

The quantum-computing market is set for growth over the next few years.. Based on the survey, 53% are planning to use quantum computing as soon as they’re able.

And with that, D-Wave’s most advanced product, the Advantage2 Quantum Computer, could experience some massive demand once the shift to quantum computing occurs. Advantage2 possesses over 4,400 qubits and 20-way qubit connectivity. It is positioned as a commercial-grade, energy-efficient system for solving complex computational problems in areas like optimization, AI, and materials simulation. Most importantly, its Applications range from drug discovery and materials research to national defense and network optimization.

But all this is not without the risks…

Risks & Red Flags

I understand that D-Wave may look like a buy right now, but there are a few things you may have missed.

The First issue is dilution. While D-Wave’s sales skyrocketed at the market equity offering, it also meant that the total number of shares outstanding increased, lowering the ownership percentage of existing shareholders, which is basically dilution.  

Also, the company is burning cash. Despite immense sales growth, D-Wave still hasn’t achieved profitability. But let’s give it the benefit of the doubt, and it might be positive next quarter – but what if it is not? How long can investors wait for the company to turn a profit?

Valuation Breakdown

While it is normal for early-stage companies to operate at a loss, it is worth comparing how D-Wave is performing against its peers.

Direct comparison shows us that none of these quantum-computing players is currently profitable. Among these companies, D-Wave has the worst return-on-equity, which can be traced to the ongoing dilution and operating losses.

On top of that, D-Wave stock is trading almost 600 times its sales. This suggests that the stock may be overvalued relative to its sales, especially if it fails to translate its technology into sustainable, dependable revenue streams.

Who Should Buy This?

D-Wave is advancing in an industry that is still on the ground floor. I think quantum computing is like AI in 2015… and I’m not sure we’re going to see anything meaningful in quantum for at least 5, 7, or 10 years.  

If you have a little risk capital set aside for emerging tech like quantum computing, a company like D-Wave might be worth considering. But remember, these are long-term plays that are full of risk and could go to zero. They could also make you a millionaire.