Rigetti Computing (RGTI) shares hovered near the $20 mark on Thursday, as market participants continued to assess the company's prospects amid a surge in quantum computing stocks. The stock's valuation remains a central point of debate, with some analysts cautioning that the current price may not be sustainable given the company's nascent revenue stream.
Government Funding and Valuation Concerns
The company is a potential beneficiary of the CHIPS and Science Act, having received a letter of intent from the U.S. Department of Commerce for up to $100 million in funding over three years. However, this funding is not yet finalized, and the company's market capitalization of approximately $6.85 billion stands in stark contrast to its first-quarter revenue of just $4.4 million. Analysts at Motley Fool have warned that the stock could decline by 50% or more in the second half of 2026 if revenue growth fails to materialize.
Quantum Sector Dynamics
The broader quantum computing sector has been buoyed by recent policy moves, including the White House's May announcement of letters of intent with nine firms for $2.013 billion in CHIPS Act funds. This has turned quantum hardware companies, which have historically struggled to generate profits, into policy-driven trades. However, the sector has also experienced selling pressure this week, with investors taking profits after a funding-driven rally.
Technical Milestones and Challenges
Rigetti recently unveiled its new 108-qubit processor, Cepheus-1-108Q, which is built from 12 linked chiplets. The company reported a two-qubit gate fidelity of 99.1% and aims to reach 99.5% by year-end. However, the path to broad quantum advantage requires roughly 1,000 qubits and fidelities above 99.9%, according to Rigetti's own filings. The company's financials remain thin, with an operating loss of $26.0 million in the first quarter and $569.0 million in cash and investments.
Market Context
The stock's movement is driven more by expectations of federal support and technological milestones than by current earnings. Simply Wall St has estimated Rigetti's fair value at $16 per share, below the recent close of $20.98. The company continues to post losses, though first-quarter revenue showed some improvement. The quantum sector has also been influenced by a Mizuho price-target hike for D-Wave Quantum (QBTS), which lifted other names in the space.
Risks and Outlook
Rigetti's annual filing acknowledges that the company is still developing its technology and does not have a scalable business model in place. The timeline for achieving commercial viability may be longer than expected, and the company may need additional capital, which could lead to shareholder dilution. Investors are now closely watching for clear terms on government funding and evidence of progress in error rates, customer adoption, and revenue generation.
