Down 61%, Should You Buy the Dip on Rigetti Computing?

Quantum computing specialist Rigetti Computing (NASDAQ: RGTI) has been through a lot in recent months. As of this writing on April 7, the stock is down 61% from January's all-time high. But if you shift your focus to a six-month view, Rigetti has gained a staggering 1,014% in that period.

The company didn't exactly earn its skyrocketing price jump, but the recent drop isn't Rigetti's fault either. Forces way beyond Rigetti's control are playing Wall Street lacrosse with the stock. So what's going on, and is this price dip a good time to buy Rigetti stock?

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The story so far

I'm sure you know the good part. Fellow quantum computing expert Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) developed a new chip with superior error correction in early December. This large step forward helped Alphabet's Google Quantum AI team crush a performance benchmark to smithereens, making modern supercomputers look frozen in time by comparison. This warmly welcome sign of progress sent all quantum single-focus computing stocks skyward, including Rigetti.

But the fun didn't last forever. In January, just a month after the error-correcting breakthrough, Nvidia (NASDAQ: NVDA) CEO Jensen Huang said that truly useful quantum computers were still many years away. Two decades looked like a reasonable estimate in Huang's mind.

And he should know, since Nvidia also competes in this market with a focus on connecting today's digital technology to tomorrow's quantum computers. Huang isn't some anonymous third-party analyst, but a business leader with his fingers deep in the quantum computing pie. He wants to have a large slice of it in the long run.

That statement took the wind out of Rigetti's stock sails, as it did for the other pure-play quantum computing stocks. Huang hit the reset button on this sector's dreams of quick development and nearly immediate riches.

On top of that bubble-popping event, the market isn't terribly fond of speculative growth stocks with negative earnings right now. The growth-oriented Nasdaq Composite (NASDAQINDEX: ^IXIC) market index is down 21.5% in the last three months, with about half of the pain accumulating on Thursday and Friday of last week. Tariffs may not slow down Rigetti's quantum computing research directly, but anything that limits the broader economy's access to borrowed funds could be bad news. Without free-flowing capital, Rigetti and its peers might have a hard time landing business-generating contracts.

Rigetti's stock has actually held up better than the Nasdaq Composite index over the last month, hanging on with a 2.3% price drop while the index plunged 13.7%. But the picture changes dramatically if I adjust that chart by a single day, and the comparative chart looks like this after shifting the time frame by a full week:

RGTI data by YCharts

Rigetti's wild ride

All right, so Rigetti soared thanks to Google's research breakthrough and then started to fall because of a modest analysis by Nvidia's management. The economic backdrop isn't helping. Where does Rigetti's stock land on the scale of "ridiculously cheap" to "way too expensive" today, then?

I'm afraid Rigetti's stock is much too hot to touch at this point. The 61% price drop is a good start, but very far from "good enough."

Even now, Rigetti shares trade at 142 times trailing sales, making even Nvidia's ratio of 18 times sales look affordable. I'd love to talk about profit-based metrics, but Rigetti is burning cash at the rate of $61.7 million per year. At this rate, it could run out of cash reserves in less than three years -- long before quantum computers are supposed to gain game-changing powers.

The company could become a buyout target along the way, or it might sign long-term contracts with plentiful revenue streams in a forward-looking perspective. Otherwise, I expect Rigetti to dip into unwelcome cash sources such as dilutive stock sales or expensive debt papers.

Is Rigetti worth the risk? I'm afraid not.

It's far too early to pick long-term winners among the handful of small and unprofitable quantum computing experts. But you may have noticed that established tech titans like Alphabet and Nvidia have serious interests in this technology, too. Those are the stocks I would pick if I wanted a low-risk connection between quantum computing and my stock portfolio. I can't even pin a target price on Rigetti where I might be interested in pecking at the single-market expert.

Like I said, Rigetti has a long way to go before it can make investors' dreams come true. Many things can go wrong on the way.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.