Billionaire Israel Englander sold 80% of his stake in Rigetti Computing in the first quarter, but every analyst following the company rates the stock a "buy."
Rigetti Computing believes its full-stack approach to quantum computing offers the fastest, safest path to commercialization of cloud-based quantum services.
Quantum computing will still be a very nascent technology in 2030, and Rigetti shares trade at an absurdly expensive valuation of 290 times sales.
In the first quarter, hedge fund billionaire Israel Englander of Millennium Management sold 1.2 million shares of Rigetti Computing(NASDAQ: RGTI), reducing his stake in the quantum computing stock by 80%. The sale represented a sharp turnaround from the prior quarter, when Englander purchased 1.4 million shares.
His decision to sell stands out because all six analysts who follow Rigetti have a "buy" rating on the stock. The target prices range from $14 per share to $16 per share, implying upside of 21% to 39% from the current share price of $11.50. Put differently, not one analyst thinks the stock is overvalued at its current price.
Does Israel Englander know something Wall Street doesn't?
Quantum computers will not replace classical computers for most tasks
Classical computers manipulate binary digits (bits) to perform calculations and run operations, but quantum computers manipulate quantum bits (qubits), which can store exponentially more information. That's because bits can only be ones and zeroes, but qubits can be weighed combinations of ones and zeroes.
That a qubit can simultaneously exist as one and zero is called superposition, and that quality lets quantum computers quickly solve certain problems that would take classical computers years. Quantum computers are particularly well-suited to situations with lots of variables interacting in complex ways, such as simulation and optimization problems.
For instance, a quantum computer would be especially helpful in simulating molecules to accelerate drug discovery and material design. It would also be helpful in optimizing supply chains and logistics routes. But quantum computing will never replace all classical computing. "For most kinds of tasks and challenges, traditional computers are expected to remain the best solution," IBM said on its website.
Image source: Getty Images.
Rigetti reported disappointing financial results in the first quarter
Rigetti builds and operates quantum computing systems. The company designed the first multichip quantum processor, and it offers cloud-based quantum computing services. Management says its full-stack approach spanning hardware and software "offers both the fastest and lowest risk path to building commercially valuable quantum computers."
Rigetti reported disappointing first-quarter financial results that missed estimates on the top and bottom lines. Revenue plunged 51% to $1.5 million, and non-GAAP (generally accepted accounting principles) net income was -$0.08 per diluted share. The company also reported net cash used in operations of -$13.6 million. And Wall Street expects Rigetti to continue losing money through at least 2028.
Rigetti Computing stock is incredibly expensive
So, returning to the original question: Does billionaire Israel Englander know something Wall Street doesn't? Not necessarily. He bought shares when Rigetti caught fire in the fourth quarter. But when the stock rocketed to $20 per share early in the first quarter -- representing a 90-day gain of 2,500% -- Englander may have simply decided to take profits.
Meanwhile, the six Wall Street analysts who follow Rigetti, all of whom have a "buy" rating on the stock, are probably counting on investors' willingness to pay a very high valuation multiple to own a prominent stock in the trendy quantum computing industry. But I think investors have gotten way ahead of themselves with Rigetti.
The quantum computing market is projected to grow at 20% annually through 2030, but spending will total just $4.2 billion at that point, according to Grand View Research. Comparatively, the cloud computing market is also expected to grow at 20% annually over the same period, but spending will total $2.4 trillion. Put differently, the cloud computing market will still be about 570 times bigger than the quantum computing market by the end of the decade.
Quantum computing will undoubtedly be an important technology in the future, but that future is still many years away, and Rigetti currently trades at 290 times sales. To put that in context, cloud computing company Cloudflare trades at 30 times sales, which itself is very pricey. But Rigetti is nine times more expensive. Investors should avoid the stock for now.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cloudflare and International Business Machines. The Motley Fool has a disclosure policy.
