Rigetti Computing vs. Taiwan Semiconductor: Wall Street Says Buy One and Sell the Other

Quantum computing has the potential to revolutionize dozens of industries. From drug development to cybersecurity to engineering, quantum chips could rapidly increase innovation.

That potential isn't lost on big tech companies, which continue to research quantum applications and develop new chips. But pure-play quantum computing companies have seen their stocks soar over the last year or so. Rigetti Computing (NASDAQ: RGTI) has been one of the biggest winners, with its stock up more than 3,000% over the past year (as of Oct. 23).

The largest chip manufacturer in the world, Taiwan Semiconductor Manufacturing (NYSE: TSM), has practically no exposure to the quantum computing trend. But it's the go-to foundry for anyone developing leading-edge artificial intelligence (AI) chips. That's resulted in phenomenal sales growth, and investors have rewarded the stock by sending shares 45% higher over the past year.

But Wall Street analysts only see one of these companies moving higher from here, based on their median price targets.

Image source: Getty Images.

• Analysts' median price target for Rigetti Computing is $20 per share, representing 50% downside as of this writing. Only one analyst has a target above the current price of about $40.
• Analysts' median price target for Taiwan Semiconductor (TSMC for short) is $354 per share, representing 23% upside as of this writing. Notably, no analysts have a price target lower than the current price of about $289.

Here's why investors should be cautious with the quantum computing pure play and optimistic about the huge semiconductor foundry.

The full-stack quantum pure play is risky

Rigetti was early to the idea of developing and manufacturing quantum computing chips and connecting quantum computing to the internet for other companies to use. As a result, the business includes hardware and software development, fabrication facilities, and a cloud computing platform.

That structure enables it to bring its innovations to market quickly, but it also comes with a lot of risk. If Rigetti can't produce better chips than its competitors, it has a lot of overhead that could go underutilized.

To that end, it made its Cepheus-1-36Q quantum computer available on its own cloud and Microsoft Azure this summer. The multichip system is the world's largest quantum computer, and it halved the error rate of its previous generation system.

Rigetti is also seeing sales momentum, announcing three new deals worth a total of $11.5 million in September. One deal was with the Air Force Research Laboratory; the other two are commercial deals, with management choosing not to identify its buyers.

But those sales pale in comparison to Rigetti's current valuation. The company's market cap sits around $11.3 billion. Even with the boost from those announced sales, analysts only expect sales of about $21.5 million next year.

Meanwhile, the company is burning cash as it develops new quantum chips and systems. Through the first six months of the year, net cash used in operating activities totaled $30 million. After raising $350 million with a secondary offering in June, it now has $571 million of cash and equivalents on its balance sheet, but if it continues to burn cash, it may have to do another equity raise, further diluting shares.

The AI chip giant with lots of upside

TSMC holds a tremendous share of the semiconductor manufacturing market. It managed to take over 70% of all spending on foundry services during the second quarter, according to Counterpoint Research. And based on its strong third-quarter sales, it likely continued taking share of the market thanks to its advanced technology.

TSMC benefits from a virtuous cycle, where its technology lead helps it win contracts with the most advanced chip designers. In turn, it can use that cash to invest in research and development and added capacity. That ensures it maintains its technology lead, and it's able to win new contracts the next year. With the demand for AI computing, TSMC is seeing most of the manufacturing for those chips come its way.

Management expects revenue to climb by an average of 20% per year between 2025 and 2029. That includes a 35% increase in revenue this year, accelerating from last year's 34% growth. It has also seen gross margin rise as it ramps up its 3nm node process. And based on early reports about its next-generation 2nm pricing, it could maintain those margins into next year as it scales up the new node process.

A big reason Wall Street is still bullish on TSMC stock is that its shares are relatively cheap. At less than 28 times forward earnings expectations, it presents great value relative to its expected growth.

While Rigetti has a lot more upside if it can manage to beat competitors to market and further commercialize quantum computing, the need for services provided by TSMC is unlikely to collapse anytime soon. At their current prices, TSMC is a safer stock, with higher average expected returns.

Adam Levy has positions in Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.