D-Wave Quantum Inc.: A Rising Star in Quantum Computing Investment

The quantum computing field is evolving quickly, with major technology companies investing heavily in this groundbreaking technology. Among them, D-Wave Quantum Inc. (NYSE: QBTS) stands out. Over the past year, the company’s share price has skyrocketed by 992%, making it one of the most notable stocks of 2024.

This impressive performance comes as quantum computing gains traction in the mainstream market. Tech giants like Alphabet and Amazon are making significant advancements in their own quantum projects, including Alphabet’s Willow chip architecture and Amazon’s Quantum Embark initiative. Given this momentum, investors are left contemplating whether D-Wave could be a solid long-term investment opportunity.

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With this background in mind, let’s delve into D-Wave’s offerings and potential risks, to assess whether its shares are still a worthwhile purchase heading into 2025.

D-Wave: Breaking Ground in Quantum Technology

D-Wave has marked several significant achievements in advancing quantum computing. Notably, it recently calibrated its 4,400-qubit Advantage2 processor, showcasing impressive performance improvements over its prior models. The new system can solve complex 3D lattice problems 25,000 times quicker than the old Advantage processor and provides solutions that are five times more precise for high-accuracy computations.

Additionally, D-Wave has formed strategic alliances across multiple industries. Collaborations with NTT DOCOMO for mobile network optimization and Japan Tobacco Inc. for drug discovery demonstrate the practical applications of D-Wave’s quantum solutions.

Beyond hardware, D-Wave has also pioneered industry-first service-level agreements for its Leap quantum cloud service, a move that highlights the company’s confidence in the reliability of its platform.

Institutional Interest Grows, but Valuation Concerns Persist

Increasing interest from major financial institutions has been noted, especially after noticeable buying activity in the fourth quarter of 2024. Institutional ownership in D-Wave now stands at 55.4%, a strong indicator of robust confidence in the company’s future, especially for a quantum firm that hasn’t yet turned a profit.

However, potential investors should note that the present valuation poses an important consideration. The stock is currently priced at over 172 times its projected 2025 revenue, reflecting both market enthusiasm and ambitious growth expectations for the quantum sector.

Considering D-Wave’s high valuation, investors need to think critically about their entry tactics. The company’s recent $175 million equity offering solidifies its working capital but could introduce risks of shareholder dilution later on.

Revenue Growth and Market Expansion Plans

Financial results highlight the early-stage nature of D-Wave’s business. In Q3 2024, core quantum computing service revenue surged 41% year-over-year, showcasing increasing platform adoption. Nevertheless, overall revenue fell by 27% to $1.9 million, primarily due to timing issues with professional services contracts.

This shift in revenue mix corresponds with D-Wave’s strategic emphasis on recurring quantum service offerings, which promise steadier long-term revenue compared to project-based professional engagements.

Additionally, D-Wave is targeting market expansion in both commercial and governmental sectors. The company recently secured “awardable” status on the U.S. Department of Defense’s Tradewinds buying platform, opening doors to significant procurement opportunities. Partnerships with the Chicago Quantum Exchange and regional tech firms further enhance its market position.

These expansion initiatives are backed by tangible applications, proving the business value of D-Wave’s quantum solutions. Instances include optimization of telecommunications networks, leading to reduced expenses, and speeding up drug-discovery efforts through advanced quantum modeling techniques.

A Cautious Approach to Investment in Emerging Technology

Given the substantial rise in D-Wave’s stock price and its lofty valuation, investors may want to proceed judiciously when building a position. A possible strategy involves selling cash-secured puts at lower strike prices. This approach allows investors to potentially acquire shares more affordably while earning income from the premiums.

For instance, investors might sell out-of-the-money puts priced below their target entry threshold. If the stock continues on its upward path, the earned premiums yield returns as investors wait for a more opportune entrance. Conversely, if the stock dips to the strike price, they can acquire shares at a more attractive valuation.

This options strategy requires careful management and sizing. Only secure puts with capital intended for stock purchases, ensuring readiness to take over shares if they fall to the desired price.

The Conclusion

D-Wave finds itself in a market ripe with potential, where an operational quantum computer could revolutionize industries, spanning from healthcare to artificial intelligence. The company has made immense strides in developing its technology alongside securing critical partnerships. Yet, the current stock valuation calls for a careful approach to investing.

For those intrigued by the long-term prospects of quantum computing, D-Wave presents an avenue to engage with an emerging field. Nonetheless, given the high valuations and early-stage characteristics of the quantum market, adopting a disciplined and strategic approach when building a position could be the wisest path forward.

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Suzanne Frey, an executive at Alphabet, is part of The Motley Fool’s board of directors. Similarly, John Mackey, the former CEO of Whole Foods Market, now an Amazon subsidiary, holds a position on the board. George Budwell has no holdings in any mentioned stocks. The Motley Fool owns shares in, and recommends Alphabet and Amazon. For more details, refer to the Motley Fool’s disclosure policy.

The views and opinions expressed herein belong to the author alone and do not necessarily reflect those of Nasdaq, Inc.