D-Wave Quantum Inc (NASDAQ: QBTS) rallied as much as 30% this morning after the launch of its most advanced quantum computer to date dubbed the “Advantage2”.
According to Alan Baratz, the chief executive of QBTS, the new system is an “engineering marvel” that offers meaningful technical advancements.
It highlights “D-Wave’s progress in scaling quantum tech to meet industry demands for growing computational processing power while maintaining energy efficiency,” he added in a press release today.
Following today’s surge, D-Wave Quantum stock is up more nearly 300% versus its YTD low.
Valuation remains a major overhang on D-Wave stock
The newly launched Advantage2 offers an exciting 40% increase in energy scale and reduces noise by as much as 75%.
It’s capable of solving a given problem with relatively fewer qubits as well.
However, this development is far from sufficient in removing the single, most concerning overhang on QBTS stock that, if anything, has gained even more prominence following today’s rally.
And that’s “valuation”.
D-Wave shares are now going for an enormous price-to-sales multiple of more than 200 on a forward basis, indicating investors are paying an exceptional premium on its future growth.
That’s a red flag given even Nvidia, the AI darling itself, is going for a forward P/S ratio of a tad above 30 only at writing – and it’s not like D-Wave pays a dividend to incentivize risk taking either.
QBTS shares could lose momentum due to immense competition
Investors are recommending caution in buying D-Wave Quantum stock at current levels, since it faces immense competition in the quantum technology space.
While pure-plays like IonQ and Rigetti are usually touted as rivals, what’s even more concerning is that the titans, including Google and Microsoft, are investing rather aggressively in quantum tech as well.
These US tech behemoths have billions of dollars worth of cash on their balance sheet that they can put to use to advance quickly in quantum computing and eventually overshadow D-Wave’s niche approach.
All in all, the mega-cap tech names could rob QBTS shares of the much-needed institutional capital to remain in an upward trajectory over the long term.
Is it worth investing in D-Wave Quantum in 2025?
Note that D-Wave is among a handful of quantum technology specialists that have already hit a sought-after milestone of achieving quantum supremacy.
Still, the aforementioned challenges aren’t lost on analysts. According to data from Barchart, the consensus rating on D-Wave stock remains a “strong buy” – however, the mean target of $12.33 indicates potential downside of more than 25% from current levels.
Street’s estimate for the Burnaby headquartered quantum computing company further substantiates the narrative that today’s rally in QBTS shares has gone a bit too far. Investors may, therefore, be better off selling this AI stock into the strength.
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