Nvidia's anticipated future in quantum computing surpassed expectations, outperforming both IonQ and Rigetti Computing.
In recent developments, Nvidia CEO Jensen Huang's prediction that it could take 15 to 30 years to bring "very useful quantum computers" to the market led to a significant dip in the stocks of two prominent quantum computing companies, IonQ and Rigetti Computing. These shares plunged by 39% and 45% respectively on January 8th.
Traditionally, computers depend on binary bits of zeros and ones. However, quantum processing units (QPUs) exceed this limitation by storing zeros and ones simultaneously in qubits, enabling faster processing than traditional computers. Nevertheless, quantum computers are more substantial and costlier than their binary counterparts and are prone to more errors due to rapid calculations. As a result, they are primarily used by research institutions, universities, and government agencies for niche calculations rather than practical applications for mainstream businesses.
Given the challenges in scaling up quantum computers and their high costs, Huang's prediction seems plausible. It took Nvidia about two decades to evolve its gaming and professional visualization graphics processing units (GPUs) into AI accelerators for data centers. In that context, it's reasonable to expect that quantum computers will require a similar time frame to go mainstream.
Quantum computing companies like IonQ and Rigetti, which gained popularity following their merger with special purpose acquisition companies (SPACs), saw their valuations surge based on ambitious predictions. However, Huang's latest comments led to a loss of investor confidence, resulting in a substantial decline in their stocks.
To scale its systems, IonQ has developed a "trapped ion" technology to shrink the width of a QPU. This technology could potentially reduce errors and help the company achieve faster and cheaper scaling. However, the departure of the company's founder and chief scientist, Chris Monroe, in 2023, setbacks the development efforts.
Rigetti manufactures QPUs and offers cloud-based quantum computing services. The company launched its Novera QPU -- a 9-qubit commercial version of its quantum computer -- in late 2024, which costs $900,000. In 2024, it also deployed its first 84-qubit Ankaa-3 system, which can detect over 99% of processing errors. However, Rigetti lost its founder and president, Chad Rigetti, in December 2022. While these developments raised concerns, the company's subsequent product launches helped allay some investor concerns.
Despite their rapid growth and consistent revenue generation, IonQ and Rigetti still trade at high valuations. Even after their decline, IonQ's enterprise value is 75 times its expected 2025 revenue, while Rigetti's enterprise value is 171 times its projected revenue for 2025. Given Huang's comments, it isn't surprising that IonQ and Rigetti experienced a significant drop in their stocks.
Despite the challenging outlook, both companies continue to show promise. IonQ is projected to grow its revenue at a compound annual growth rate (CAGR) of 89% from 2023 to 2026. Similarly, Rigetti is expected to grow at a CAGR of 43% during the same period. However, given the high valuations and the industry's uncertainty, investors might want to approach these stocks with caution.
Investors might need to allocate their finances wisely when considering investments in quantum computing companies like IonQ and Rigetti, given their high valuations and the industry's unpredictable nature. These high valuations could be influenced by the potential returns promised by quantum computers, making it an attractive proposition for some investors looking to invest in the field of finance.
Given the high costs associated with building and maintaining quantum computers, it might be prudent for these companies to seek outside financial support through investing or partnerships with established companies in the finance sector to offset these expenses and expedite their progress.
