Is D-Wave Stock Yesterday's News?

While perhaps not as widespread or well-known as the artificial intelligence trade, quantum computing stocks have arguably been the hottest sector in the stock market.

One quantum stock, D-Wave Quantum (NYSE: QBTS), has seen its stock price surge by over 625% in the past year, as investors became increasingly bullish on the future of quantum computing. Quantum computing is viewed as the next iteration of the computer. While computers are built on the foundation of bits, the smallest unit of digital information, quantum computers leverage qubits.

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While bits process information sequentially, qubits are in a state of superposition and can process multiple bits of information simultaneously, meaning they can compute different potential solutions to problems at the same time, getting to a potential answer or completing a task exponentially quicker. Some researchers believe even mid-range quantum computers will be even more advanced than the most cutting-edge supercomputers available today.

Although D-Wave Quantum still has significant gains, the stock price has been roughly cut in half from highs hit in mid-October (as of Dec. 1). Is D-Wave Quantum yesterday's news?

Game-changing potential that still could be very far away

Quantum computing leverages quantum mechanics and is similar to artificial intelligence (AI) in that it's difficult for most investors to understand how it really works. However, quantum computing is believed to have the potential to make significant breakthroughs in solving some of the world's most pressing problems. If quantum computers can be commercialized in a manner similar to today's computers, the opportunities would seem endless.

That's why stocks like D-Wave trade at multibillion-dollar market caps, despite having anemic revenue and losing tens of millions of dollars each quarter. D-Wave is working on two forms of quantum computing. Its primary quantum system is quantum annealing, which is more geared toward solving specific optimization problems.

In quantum annealing, it is easier to build systems with more qubits, but these qubits are more susceptible to errors. More recently, D-Wave has begun building more traditional gate-based qubit systems, which can solve a broader array of problems. Gate-based systems tend to incorporate fewer qubits because they are solving more problems and therefore require much more precise control, which becomes difficult to scale to more qubits.

Although D-Wave's stock price has pulled back, I don't think it's because the company is yesterday's news. Ultimately, we still don't know whether the commercialization of quantum computing will be possible, or what problems quantum systems will have the power to solve. While there is certainly immense potential, some market environments enable extraordinary speculation and risk-taking, while others prompt investors to scrutinize valuations more closely.

Quantum stocks have retreated as investors adopt a more risk-averse approach. I continue to recommend a smaller, more speculative position in quantum stocks such as D-Wave Quantum.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.