Small-Cap Quantum Computing Name 'Ripe for the Picking' After Surprise Profit
A leader from the growing sector has emerged as a strong trade idea.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Some readers will recall that, several months ago, I had been long the equity of both Quantum Computing QUBT and D-Wave Quantum QBTS. Those same readers will likely recall that I had been more impressed with Quantum Computing's balance sheet than I was with that of D-Wave's.
I made a premature exit from D-Wave that cost me the bulk of the recent surge on that stock's share price. However, I have traded in and out of Quantum Computing and have largely held on to those shares. As of Friday's close, month of May to date, D-wave was up 172%.
Quantum? Just up 97.5% for the month of May. Not performance maximized, but not exactly spilled milk either.
Earnings
Two weeks ago, Quantum Computing went to the tape with the firm's first quarter financial results. The firm posted a GAAP EPS of $0.11, which was a surprise profit, on revenue of just $39,000.
That top-line number, believe it or not, was good enough for year-over-year growth of 44%. D-Wave, on the other hand, in early May, posted a Q1 GAAP EPS of -$0.02 on revenue of $15 million. That number, while still minuscule in our world, was enough to drive year-over-year growth of 507%.
Balance Sheets
Quantum Computing ended the quarter with a cash position of $166.4 million and current assets of $167.2 million. Current liabilities added up to $3.7 million, putting the firm's current ratio at a ridiculously healthy 45.19. Anything above 1.0 is usually considered adequate, while anything approaching 2.0 is usually considered to be quite robust. The firm has no debt of any kind on its balance sheet.
D-Wave, on the other hand, ended the period reported with a cash position of $304.3 million and current assets of $310.9 million. Current liabilities amounted to $15 million. That put the firm's current ratio at 20.7, up from just 6.1 in just three months' time. D-Wave's balance sheet is no longer inferior to Quantum Computing's balance sheet.
The only difference that might still tilt the scales in Quantum's favor is that D-Wave has a couple of longer-term liabilities on its books that Quantum does not have. D-Wave has $30.4 million in long-term debt and $65.9 million in warrant liabilities. The firm obviously has enough cash on hand to handle these liabilities if need be. This could ultimately have some dilutive impact on the shares as in one year's time, those warrants have gone from a fair value of -$2.7 million to $3.9 million.
Thoughts
Both stocks are, by traditional metrics, grossly overvalued. That said, capital still flows into stocks like Palantir Technologies PLTR, which is a more mature AI-focused platform provider, but you get my drift.
Generative AI is the latest and greatest thing now in the technology world and will likely be with us from anywhere from a long time to something close to the rest of conceivable time as it evolves. That said, quantum computing will be far more powerful and speedy than any supercomputer invented so far. Quantum computing, in my amateur opinion, remains the next great thing.
Readers can see that QUBT broke out of a saucer-with-handle pattern with a $9.60 pivot in mid-May. Out of this pattern, my target price had been adjusted to $14.40. The stock closed at $13.30 on Friday and I have seen it trade at $14.10 ahead of the Tuesday morning opening bell. The stock is borderline overbought with a very bullish looking daily MACD.
Readers will see a very similar looking chart for QBTS. The expectation here is that the stock is clearly overbought from a technical perspective and coming off of a saucer-and-handle generate pivot of $11.90, I would have had a target of $17.80. I see that the stock went out at $18.80 on Friday and has traded at $19.60 early on Tuesday morning.
My educated opinion is that D-Wave is more ripe for the picking than is Quantum Computing. That said, I am the guy who missed most of the move in D-Wave, so I may not be correct. On the other hand, I did nail the move in Quantum Computing and though I will take a token profit at my target ($14.40), I will not be exiting the name.
This story is to be continued, probably over the next 15 years or so. As for D-Wave, for now, I am left waiting for a discount. One that I am sure will present itself, probably sometime fairly soon.
At the time of publication, Guilfoyle was long QUBT and PLTR equity.
