D-Wave Systems continues to gain investor attention despite a 1000% return in 2024. The reason for this interest isn’t just the stock surge, the company’s quantum annealing technology has commercial use cases. However, the financial position raises concerns worth addressing before taking a position at these levels.
D-Wave Systems is a pioneer in quantum computing that specializes in developing quantum annealing systems and is also working on gate-model quantum computers. This dual approach allows D-Wave to address a broader range of computational problems.
When the training data available is scant, quantum annealers can optimize the machine learning pipeline efficiently. ‘Advantage’ is the flagship product of the company while it continues to work on the more powerful Advantage2. It’s a quantum processor, which features 4,400 qubits and offers improved connectivity for handling complex computations.
D-Wave also offers a cloud-based platform that enables users to access its quantum systems in real-time, and a set of software tools that let them formulate problems in a way that their quantum hardware can handle.
Google, NASA, the University of Southern California, Lockheed Martin, Vinci Energies, NEC Corporation, CaixaBank, and NTT DOCOMO are among D-Wave’s most notable clients. Besides the company’s collaboration with Davidson Technologies to support military applications and workforce training in quantum technologies, and with Volkswagen to optimize traffic flow in urban settings, such as bus routing during events to improve efficiency.
It has managed to secure these partnerships because its technology is commercially viable. As per the management, it has a Total Addressable Market of $32 billion at the midpoint. As the company sits on a working product, this TAM looks really attractive. However, converting this viability to financial success is a big question mark. The company needs to shift from an R&D mindset to a sales mindset. Recently, it raised $75 million via an ATM equity offering. It used the stock surge for its own benefit, but it needs to figure out a way to translate this benefit to both the customers and shareholders.
As things stand, the firm neither sells a product at volume nor can improve it drastically enough to demand better pricing. Its recent capital injection can help the company for another year or two. But what happens after that? For us, the bullish thesis is quite straightforward. The company needs to figure out how to make more money. Any evidence of that happening will cause the stock to spike again. A failure to do that could kill the investment. Investors need to tread this one carefully.
D-Wave is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 6 hedge fund portfolios held QBTS at the end of the third quarter which was 8 in the previous quarter. While we acknowledge the potential of QBTS as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as QBTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article was originally published at Insider Monkey.