Recommendation:
I recommend short-selling D-Wave Quantum (Ticker: QBTS) for the next year. D-Wave specializes in the development and manufacturing of quantum computing and quantum software. D-Wave is not worth the $18.80 share price because the 24% yearly growth rate is an unrealistic number that has no grounded demand. The company has a fair share price of $4.50. With this current market cap, the company is valued at over 3 times the fair market value. I believe in the next 12 months, D-Wave stock will significantly drop in price and bottom out at around $4.50 per share. If you open a short position now and set your target price to $4.50, there is a 300% potential return on capital.
Bulls say:
-D-Wave has a first-mover advantage in the industry of quantum computing, as they sold the first quantum computer to Lockheed Martin
-The company’s quantum computers are uniquely positioned for more current and relevant issues such as transportation logistics
-D-Wave is developing a new model called the gate-way, which will allow the company to produce quantum computers that can support drug discovery and material science
Bears say:
-Although D-Wave was the first to sell a computer in the quantum field, the company does not have hardware or software advantages over competitors like Google or IBM
-D-Wave is an unprofitable company that has a high cash burn rate
-The computing limitations of quantum computing hinder the usefulness of the new technology for companies to use
D-Wave’s website
Upside:
D-wave is projecting an annual growth rate of 88% for the next 5 years, a growth rate that lacks real-world justification. Using D-Wave’s own projections, a discounted cash flow analysis yields a fair value of just $4.50 per share. This suggests that the current price reflects a more than 4x overvaluation. I recommend shorting the stock with a price target of $4.50, offering a substantial potential return of 317%. The upside will come in the next several months when the hype around AI begins to die down. The rise of AI has helped fuel the recent rallies in quantum computing stocks such as D-Wave. However, as I will later discuss, quantum computing is in such an early stage to be able to determine if it will help with Ai or any other intense field such as materials science. The upside of D-Wave is not based on reality but rather on a speculation about the future.
Economic Moat:
D-Wave does not have an economic moat, and this is expected to stay persistent. In fact, the company's flagship system “Leap” is not a fully quantum computing machine. D-Wave describes the use cases of Leap as “hybrid quantum computing.” In essence, this means D-Wave is reliant on traditional computing to run their quantum computers. Demonstrating that D-Wave does not even possess fully operational quantum computers.
Quantum Computing Disadvantages:
Although D-Wave was the first company to sell a quantum computer, the company's current quantum systems are lacking in speed when compared with other companies. D-Wave’s Leap computer is better compared with the behavior of simulated annealing. In this case, the latest generation of Fujitsu's digital annealer is faster than D-Wave's Leap. Using the same optimization challenge, the Fujitsu digital annealer takes anywhere from 0.1 to 0.5 seconds to optimize the problem. Comparatively, the Lead is slower, taking anywhere from 0.5 to 2.0 seconds to solve the same problem. Evidently, this suggests that D-Wave's latest computers are at a disadvantage when compared to competitors such as Fijitsu.
D-Wave’s Leap Computer
D-Wave’s Unprofitability:
D-Wave is currently losing money; the company reported in 2024 a loss of $143 million. Which begs the question, why would a company that loses $143 million every year be worth almost $6 billion in market capitalization? Most would point to the future potential of quantum computing being able to solve complex issues and use this as a basis to justify such a large market capitalization. However, the future prospects are not bright for quantum computing. Currently, quantum computers can’t even factor simple two-digit numbers. Given this reality, it is hard to believe that quantum will be able to perform material science (a more complicated task) in the future. The fact of the matter is that a company that burns $46 million in cash every year with no groundbreaking technology is not worth almost $6 billion in market capitalization.
D-Wave’s lack of usefulness is best demonstrated with quantum computing’s current market share. Quantum computing has a current market share of about $1.01 billion (USD), compared with classical computing at about $450 billion (USD). The quantum computing market share demonstrates the insanity around D-Wave’s $5.9 billion valuation. D-Wave, which is only one of several quantum computing companies, has a larger market capitalization than the entire quantum computing industry.
It's not just me stating the applications of quantum computing are far out in the future; professionals such as Jensen Huang recently stated that “very useful quantum computers are likely 15–30 years away.” At this stage, investing in quantum computing is too far out to determine its viability.
D-Wave’s 1 year stock performance
Hype Around AI:
The main reason D-Wave and other quantum stocks have rallied in the past year is due to the hype around AI. Many investors in quantum computing stocks believe quantum technology will be able to aid in the development of AI. That being said, the technology is too primitive and not able to aid with AI. This is especially shown with D-Wave’s applications of their quantum computers. The company's computers are used for transportation logistics, which is much simpler compared to developing artificial intelligence. The fact of the matter is that quantum computing is not applicable to the research and development of artificial intelligence.
Conclusion:
D-Wave’s valuation is disconnected from reality. The technology isn’t close to viable, the competition is insurmountable, and AI hype has pushed the stock sky high. At $18 per share, the company is trading at fantasy-level multiples.
Short D-Wave with a target of $4.5. This trade offers a compelling risk-reward profile, with up to 317% return potential over the next 12 months.