Take Note of Quantum Computing Now, Before It Takes Off

Here's the story of an investment theme in a fertile stage, possibly ready to be farmed by smaller retail investors and certainly on the radar of giants like Amazon AMZN. I'm talking about quantum computing. 

Specifically, let's look at D-Wave Quantum Inc. (QBTS) and Quantum Computing Inc. (QUBT). I'm long both names and both have been hot over the past few trading sessions. I have been trading these names because they had been moving around. That said, I am not intending to go back to flat in either.

Something New

It's true, this emerging area has not been core to our outstanding performance year to date in 2024 as have Palantir Technologies PLTR, Rocket Lab USDA RKLB, and SoFi Technologies SOFI. (Those three have been anything from home runs to grand slams.  RocketLab had successfully launched in two different hemispheres within twenty-four hours over the weekend, by the way, and Palantir Technologies popped after Wedbush analyst Dan Ives reiterated his "outperform" rating on the shares and took his target price up to $75 from $57.)

I should also say there are no guarantees here. Quantum computing may or may not be the next best thing. These may or may not be the best ideas in the space. But they are low-priced enough on a per share basis for those managing smaller portfolios to actually play the game -- and they remind me a bit how our our Top 3 names were in the early days.

Amazon is watching, too. On Friday AWS announced its new "Quantum Embark Program," which will help clients prepare for what Amazon sees as a coming era of quantum computing. Small publicly traded companies like the two I mentioned here that are involved in the nascent industry ran wild on the news.

Earnings: Close Your Eyes

Earlier this month, QUBT posted a third-quarter unadjuted loss per share $0.06 on almost no revenue. Operating cash flow landed at a loss of $4.6 million for the quarter. The company had only $3.1 million in cash, but no debt. Pay no attention to the balance sheet. The company claimed total assets of $76.8 million, but $65.3 million of that total is in the form of goodwill and other intangibles. In short, the company has not made a lot of sales and does not have a lot of dough.

But here what it did do: QUBT raised about $40 million about 10 days ago, in a registered direct offering that issued $16 million in shares at $2.50 a piece. A few days later, the company announced that it had received a second purchase order for its thin film lithium niobate photonic chip foundry from the University of Texas.

About a week after QUBT reported, QBTS went to the tape. For the third quarter, QBTS posted an unadjusted loss per share of $0.11 on (actual) revenue of $1.87 million. No one was really happy, though. More had been expected, and bookings were lower both sequentially and on a year over year basis.

For the quarter reported, QBTS generated operating cash loss $18.1 million. The balance sheet actually holds $29.3 million in cash. There is very little in the way of intangibles on this balance sheet, but there is about $46 million in debt, about $14 million of which is due to mature in less than 12 months.

In short, these companies have warts. Plenty of them. It seems to me like, due to the fact that QUBT is actually making high-profile sales that, maybe, there's a little more to the former than there is to the latter.

Quantum Possibilities 

There is opportunity here, and if the shares come in from here, I can build a large position before maybe one or both of these names take off. That's why PLTR, RKLB, and SOFI worked out so well. They all languished for a while, as we built large, long positions. By the time they were winners, we were fat at a very low net basis across all three. That is my plan here. I will update these names as we go along, but this is investment, not trading, and this is fishing with a net, not casting from the beach with one hook on a line.

At the time of publication, Guilfoyle was long PLTR, RKLB, SOFI, AMZN, QUBT, QBTC equity.