Down 50%, Should You Buy the Dip on Quantum Computing?

The company Quantum Computing (NASDAQ: QUBT) shares the same name as one of the hottest trends in tech, but it's not necessarily the best quantum computer stock to buy. Shares in competitors like Rigetti Computing (NASDAQ: RGTI), or big tech companies investing heavily in this technology, like IBM, may be better buys than Quantum Computing, which calls itself QCi for short.

That said, all quantum computing stocks are now trending lower. QCi's shares are down nearly 50% from their 52-week high. Last month, the hype surrounding this investing trend started to simmer down. More recently, renewed concerns about a possible broad market sell-off have led to stock market volatility, placing more pressure on shares.

Following any sell-off, the question that often comes up is: Is it time to buy the dip? In many cases, the answer is no, but that may not be the case with QCi.

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A major catalyst may be just around the corner

QCi shares now appear to be on a sharp downward trajectory. But there's a major event on the calendar that may change that: the company's upcoming quarterly earnings release.

After market close on Nov. 14, QCi will report results for the quarter ending Sept. 30. As an early-stage company, it has yet to generate significant revenue. Hence, updates regarding QCi's progress in reaching key milestones will be the most focused-on portion of the earnings release.

Its milestones differ slightly from those of its competitors. The company is in the business of quantum computers, or computers that use quantum physics concepts to simultaneously process large amounts of data.

But it's not setting itself up to be a manufacturer of quantum computing systems. Rather, its focus is on developing photonics-based hardware and components for use within such systems.

With this in mind, possible game-changing updates include news of commercial or governmental partnerships, or progress with the products developed by its foundry for photonic integrated circuits. Speculation seems to be highest about a possible government partnership. Last month, rumors emerged that the Trump administration is interested in taking strategic equity interests in some of the major quantum computing companies.

Then again, buying now could still backfire

As the old adage goes, there's no such thing as a free lunch. It may seem tempting to buy into QCi at current prices, only to flip it post-earnings, but if that were such a sure thing, the stock probably wouldn't be trading for nearly half of its all-time high.

Earnings day could spark the next big run-up for this stock, yet keep in mind that buying ahead of earnings could still backfire. Shifting from "risk-on" to "risk-off," the market could take any sort of negative aspect to QCi's earnings release as an excuse to sell.

In particular, investors could place greater focus on this company's substantial quarterly cash burn. During the quarter ending in June, its net losses totaled $36.5 million.

Given that it has been ramping up its production and development efforts, who knows? Net losses could come in much higher for the third quarter. QCi has just raised $500 million through a private placement, but the market could perceive higher losses as a sign that more equity raises, and with that more share dilution, are on the horizon.

In turn, instead of surging back to the range of about $20, this roller coaster ride may wind up hitting new near-term lows. Perhaps it could even fall back to the single-digit prices it traded for as recently as six months ago.

A rebound is possible, but continue to tread carefully

Many of the company's competitors, including Rigetti, IonQ, and D-Wave Quantum, also have planned earnings report releases in the days before QCi's upcoming announcement. And this may work in this company's favor. A bullish reaction for their respective earnings reports may lift all boats for this industry. Then again, the opposite could happen.

More importantly, though, the fact that these competitors may also have possible upcoming earnings day catalysts calls into question buying QCi for the following reason: Each of these companies has arguably made further commercialization progress. They may be more likely than QCi to report hitting yet another milestone.

So you may want to tread carefully with this stock. If you're bullish on a fast rebound for this space, other quantum computing plays may offer greater opportunity.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool recommends IonQ. The Motley Fool has a disclosure policy.