Transcription
Everybody wants to know which quantum stocks to buy right now. The sector is on fire. $2 billion in government funding just dropped. The pure plays are regularly making big moves based on the headlines alone. The FOMO is real, but that feeling can lead to huge losses if you're not careful. That's why I'm taking a different approach in this video. I'll guide you through some of the most promising names in quantum space, but I'll be real with you about the risks. And I'll tell you what I'll be looking forward to upgrade some of the top names from just being on my watchlist to portfolio worthy.
All right. I'm also going to give you a bonus stock idea at the end that appears to have the strong fundamentals necessary to back up the investment story. So, by the way, I'm Steve Reitmeister. I've been investing for over 40 years. I was editor-in-chief of Zacks.com for nearly two decades, and I'm currently a partner at wallstreetzen.com, where I helped develop a quant rating system that allows investors like you to find the best stocks faster. I'm happy to help you power through the quantum FOMO today with real data. And if you like the sound of that, then please give this video a thumbs up on the screen. Much appreciated. And I know you already know this, but investing carries risk. This is not personalized investment advice. Always do your own due diligence before buying or selling any stock.
Let's dig in with stock number one, Quantum Computing with the symbol of QUBT. The technology is pretty cool on this one. Literally, most quantum computers right now have to be cooled down to almost absolute zero to function. We're talking about colder than outer space. That's called cryogenic cooling, and it's quite expensive. It's complicated, and it makes scaling very hard. Quantum Computing takes a different approach. They're building quantum computers that use light photons instead of those super cool chips. The potential advantage is that photonic systems can run at room temperature. No giant refrigeration units or insane power bills. If they can actually crack the engineering, then it could scale faster than the competition. And there are other things to going for it as well. Quantum Computing was named in the US government's recent $2 billion quantum funding push. That's a meaningful stamp of validation. We've even seen a cluster of insider buying with uh five different directors stepping in around the same time back in April that showed you great confidence in what lies ahead. And Wall Street analysts' uh price targets are pointing to significant upside potential from current levels as well.
But here's where I have to pump the brakes because the fundamental reality underneath all that excitement is a bit rough. Yes, the growth looks incredible uh at hundreds of percent uh growth year over year, but that growth is off a very tiny base. It it barely counts. The company is bringing in only a few million dollars in revenue annually. Even worse is they have a negative 900% profit margin. That means that for every dollar they bring in in revenue, they lose $9. Yeah, ouch indeed. The stock is also trading at hundreds of times sales which makes it wildly expensive even for a growth story of this magnitude. The Zen rating on the stock is a C, but don't let that fool you. It is actually in the bottom 22% of all stocks we track based upon the full 115 factor review. It gets even worse as you look under hood at the component grades. Value, F. Safety, F. Financials, F. Those F's are telling you the fundamentals just aren't there yet. And while we did see that April uh insider buying cluster, over the last 12 months insiders have actually net sold more stock than they bought. So, quantum computing is interesting, but right now it's a story stock running more on hype than substance. However, there are a few things that could change to make it worthy of real investment consideration. First, [clears throat] the overall Zen rating has to climb much higher like the top 20% of all stocks which would make it be rated. And those component grades have to get off the floor. It can no longer be F's, especially for financials and value. Until then, QUBT only earns a spot on my watchlist, not my portfolio.
By the way, if you're enjoying my take on these stocks, then you should know I record several investing videos every week. Hitting subscribe and the notification bell is the best way to ensure you see my future stock pick videos. Okay, back to the quantum stocks. This brings us to stock number two in D-Wave Quantum with a symbol of QBTS. Most quantum companies are still trying to build a working quantum computer. D-Wave already has paying customers using their machines today. That's because D-Wave did something different. Instead of trying to build a general-purpose quantum computer, they built one purpose-made for a specific kind of problem called optimization. Think of optimization as picking the best option out of millions of possibili- -bilities. Things like routing delivery trucks, managing investment portfolios, or scheduling factories. Real-world problems that real companies are willing to pay real money to solve.
Okay, on the surface, there's a lot to get excited about here. D-Wave is a rare pure-play quantum stock with actual commercial revenue from customers using its hardware right now. They were also named in the US government's $2 billion quantum funding push. All right, 10 Wall Street analysts cover the stock with a strong buy consensus and an average price target pointing to significant upside potential from current levels. However, when you dig into the numbers, the story starts to lose a lot of luster. That's because D-Wave is only generating $12 million in sales the past year, and that led to a $368 million loss. So, here we're talking about losing $30 for every $1 in revenue. And if that doesn't sound bad enough, how about the fact that revenue is actually down 40% year over year. Not what you want in a growth stock. Perhaps that explains why insiders have sold a lot more of their shares over the past year. Now, that last one is a pattern we keep seeing across the pure-play quantum names. The reality check for QBTS is marked for Overdraft as it comes in to the Zen Rings review. That's because there's a lowly F rating equivalent to a strong sell recommendation. Stocks with a strong sell ratings have historically lost about 12% a year on average. That's a serious headwind to be fighting against. On top of that, D-Wave ranks dead last out of 31 stocks in its industry, the very bottom of computer hardware group. So, what needs to change before this becomes a buy consideration? A lot, but let's start with the basics. For one, the Zen rating here again has to come up, hopefully to A or B level, and the overflow of insider selling has to slow down. Until then, D-Wave stays on the watch list as well.
Before I get to the next stock, I want to invite you to join me for a live training session this coming Monday at 7:00 p.m. Eastern time. That's when I share my updated market outlook plus my trading plan to beat the market as well as the top seven stocks for the week ahead. In these live training sessions, you truly get the best of the Zen ratings and my greater than 40 years investing experience. So, be sure to join me live this coming Monday at 7:00 p.m. Eastern time. It's totally free. Just sign up at wallstreetzen.com/live. You'll also find a link in the description or scan the QR code on your screen. Look forward to seeing you on Monday.
Let's keep the ball rolling with quantum stock number three, and Rigetti Computing, symbol RGTI. Most quantum companies are basically research labs trying to figure out how to build a working quantum computer. Rigetti is different. They actually own and operate their own chip fabrication facility. That's huge. While most quantum names have to rely on partners to manufacture hardware, Rigetti makes its own. That kind of vertical integration could be a real competitive advantage if quantum computing actually scales as expected. So, on the surface, the story is compelling, especially as Rigetti was named as getting up to $100 million from the US government in the recent quantum funding round. They're building supercomputing qubits, which is the same approach of the Google and IBM are using, so they're in good company on that front. Wall Street is firmly on board as well. Seven analysts covering the stock give it a strong buy consensus. Even with the shares recently on a hot streak, the average price target still point to over 30% potential upside in the year ahead. Even better is the street high target calling for 50% upside.
Now, the revenue actually grew last year, unlike the last stock. This is important because Rigetti has the best growth grade and the best financials grade of any of the pure play quantum stocks in the video today. But, that is not a green light to race ahead with these shares, as you will see with this next round of data. Rigetti brings in about $10 million in annual revenue, resulting in a $225 million loss. That is a negative profit margin of 2200%. This also means the stock is trading at 465 times sales, when the average stock only trades for three times sales. Yeah, 150 times higher valuation than the average stock. Yes, insiders are eager to cash in with some heavy selling of late. The the CFO is selling. The the CTO is selling. Many directors are selling. Millions of dollars worth repeatedly over the last several months. When the people who know the company best are consistently heading out the exits while the stock is ripping higher, that's a signal to take notice of. Now, the Zen ratings here is a C, but here again, that hides how bad it really is. Once again, we have a stock in the bottom 22% of all stocks based on the full fundamental profile. This includes very low scores for value, safety, and sentiment. Just like the other quantum pure plays, we need to see a much healthier fundamental profile. In this case, the Zen ratings climbing back up to the top 20% earning a B grade or higher. Until then, Rigetti stays on the watch list along with the other two stocks we talked about today.
So, at this point, you might be wondering, is there actually any quantum-related stocks with fundamentals that look any good? Gladly, the answer is yes. Meet uh FormFactor, with the symbol of F O R M. They make the uh cryogenic uh testing systems that quantum companies need to develop and test their chips. They don't care if D-Wave wins or Rigetti or IBM, they sell to all of them. FormFactor even has a publicly documented research partnership with Rigetti. The two companies co-publish research on improving the manufacturing yield of superconducting quantum chips.
Now, look at the fundamentals. Form Factor has generated over $839 million in revenue the last 12 months. Whereas, the pure plays we just covered generated only about $4 million to $18 million each per year. Form Factor is actually generating a profit with a margin of 8%. Okay, that's not great, but a whole lot better than -187% to -2900% for the previous companies, right? The Zen Ring's reflects the superior data. Form gets a B grade, which translates to a buy rate. recommendation. This includes three component grades of A. That means they're in the top 5% of all stocks for growth, momentum, and sentiment. All right. Form Factor isn't perfect. The valuation does not look cheap, and as with the other stocks, insiders have been selling a bit too much of late. But, if you want exposure to quantum without gambling on which technology wins, and with a better fundamental setup, then Form is a pretty good option.
Okay, I gave you the pure plays, which are mostly watch list only picks, plus a potentially more actionable stock in uh Form. Now, which is your favorite, and why? And which are you staying away from with a 10-ft pole? Share your thoughts with our community in the comments section below. Finally, if you like this video, then you can enhance your understanding of the quantum landscape my recent video breaking down the $2 billion uh government investment that could change the game for these stocks.