Is D-Wave Quantum Stock Still a Buy?

Key Points

• D-Wave's Advantage2 quantum system is a technical milestone, and revenue grew 42% year over year, but losses remain substantial.

• An $819 million war chest provides a multiyear runway to commercialize quantum annealing technology.

• At a $9 billion market cap on minimal sales, investors are betting that quantum computing will go from a science project to a commercial reality within this decade.

• 10 stocks we like better than D-Wave Quantum ›

Quantum computing stocks have become Wall Street's favorite speculation, and D-Wave Quantum (NYSE: QBTS) epitomizes the subsector's promise and peril. The stock has rocketed 213% year to date, propelled by technical breakthroughs and a $400 million capital raise that fortified its balance sheet.

The company just launched its Advantage2 quantum system -- a legitimate advancement in quantum annealing that could solve optimization problems that current computers struggle with. South Korean institutions are signing partnerships. The momentum feels real.

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Yet scratch beneath the surface and D-Wave's fundamentals scream caution. The company burns cash at an alarming rate, posting negative operating cash flow on minimal revenue.

At a $9 billion market cap, the valuation assumes quantum computing crosses the chasm from laboratory curiosity to enterprise necessity -- and that D-Wave's annealing approach wins against competing quantum architectures. That's a multibillion-dollar bet on technology that might take another decade to mature commercially.

Image source: Getty Images.

With this background in mind, let's break down the pros and cons of buying D-Wave stock at current levels.

The quantum advantage nobody understands

D-Wave's quantum annealing technology sounds like science fiction but solves real problems. Unlike gate-based quantum computers that IonQ and Rigetti Computing pursue, D-Wave's systems excel at combinatorial optimization -- think routing delivery trucks, optimizing portfolios, or scheduling manufacturing lines.

The new Advantage2 system represents a generational leap in processing power and efficiency. Major enterprises, including Volkswagen and Lockheed Martin, have already run pilot programs, validating the technology's potential.

The company reported 42% year-over-year revenue growth in the second quarter, though from an admittedly tiny base. More importantly, D-Wave secured a $400 million at-the-market equity offering, bringing its cash position to $819 million. That war chest provides a multiyear runway to prove commercial viability.

The balance sheet shows remarkable liquidity with a current ratio of 43x -- essentially no near-term financial risk exists. But converting technical capability into paying customers at scale remains the existential challenge. Many quantum efforts stall at the pilot stage because enterprises can't justify the cost for marginal improvements over current computing.

The $9 billion reality check

D-Wave's financials reveal the chasm between potential and performance. Operating cash flow remains deeply negative, with the company burning through tens of millions of dollars quarterly for research and development. Return on equity and return on assets are both negative -- standard for a pre-revenue technology company but jarring at a $9 billion valuation.

At 318 times trailing sales, traditional valuation metrics essentially lose meaning. In short, investors are paying for D-Wave's potential as a quantum computing player, not its recent financial performance.

Competition is intensifying from multiple vectors. Gate-based quantum approaches from IonQ and Rigetti might prove more versatile than D-Wave's annealing specialty. Moreover, IBM and Alphabet are pouring billions into quantum research with far deeper pockets.

Alternative architectures using photonics or topological qubits could also leapfrog current approaches entirely. If another quantum method achieves a commercial breakthrough first, D-Wave's technological foundation crumbles. The company has started developing gate-model systems to hedge this key risk, but it is playing catch-up.

The speculation premium

D-Wave represents one of the purest quantum computing bets available to public market investors. The Advantage2 system has demonstrated dramatic speedups on specific optimization problems that would bog down current computers. The $819 million cash position provides multiple years of runway at current burn rates.

For risk-tolerant investors willing to wait five to ten years, D-Wave offers lottery-ticket exposure to a potentially transformative technology. For everyone else, the combination of negative cash flow, extreme valuation, and technological uncertainty suggests waiting for proof of commercial traction before diving into the quantum deep end.

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George Budwell has positions in D-Wave Quantum, IonQ, Lockheed Martin, and Rigetti Computing. The Motley Fool has positions in and recommends Alphabet and International Business Machines. The Motley Fool recommends Lockheed Martin and Volkswagen Ag. The Motley Fool has a disclosure policy.