Could Rigetti Computing Become the Next Nvidia?

Over the past 10 years, a $1,000 investment in Nvidia (NVDA -1.15%) would have grown to roughly $265,840. A large portion of that rally was fueled by its soaring sales of data center GPUs for processing AI tasks.

Unlike CPUs, which only process a single piece of data at a time, GPUs can process a wide range of integers and floating point numbers simultaneously. That key advantage, along with Nvidia's leadership of the discrete GPU market, made it the linchpin of the booming AI market.

From fiscal 2014 to fiscal 2024 (which ended in January 2024), Nvidia's revenue grew at a compound annual growth rate (CAGR) of 31%. Analysts expect its revenue to rise at a CAGR of 56% from fiscal 2024 to fiscal 2027 as the AI market expands.

Nvidia is still growing rapidly, but it's already the world's second-most valuable company, with a market cap of $3.35 trillion. Therefore, investors looking for even bigger gains might want to seek out small-cap companies in nascent growth industries instead of chasing Nvidia at its record highs.

One of those little companies might be Rigetti Computing (RGTI 9.09%), a $335 million quantum computing stock that has rallied nearly 80% this year. Let's see if it has the potential to become the "next Nvidia" of its quantum computing niche.

Why could quantum computing be the next big growth market?

Traditional computers process data through binary "bits" of zeros and ones, while quantum computers store zeros and ones simultaneously in "qubits" to process data at much faster rates. That's a big upgrade, but quantum systems are still massive, expensive, and make more mistakes than binary computers.

To address those challenges, many companies are trying to miniaturize quantum processing units (QPUs) and improve their error correction standards. As those technologies improve, Fortune Business Insights expects the quantum computing market to expand at a robust CAGR of 34.8% from 2024 to 2032.

A "full-stack" approach to quantum computing

Chad Rigetti, a physicist who previously worked on quantum computers at IBM, founded Rigetti Computing in 2013. It designs and manufactures quantum integrated circuits for quantum computers, and it enables developers to write their own quantum algorithms on its Forest cloud platform. That all-in-one business model makes it a "full-stack" quantum computing company.

Many full-stack quantum computing services operate within the walls of big tech companies like Alphabet's Google, IBM, and Alibaba instead of stand-alone companies. That's because quantum computing hardware is expensive to manufacture, operate, and maintain. Yet those challenges didn't stop Rigetti from going public by merging with a special purpose acquisition company (SPAC) in March 2022.

Rigetti's rocky start and eventual recovery

In its pre-merger presentation, Rigetti claimed it could grow its revenue from $7 million in 2021 to $34 million in 2023. It actually generated $8 million in revenue in 2021, but that figure only grew to $13 million in 2022 and declined to $12 million in 2023.

It mainly blamed its slowdown on the uneven timing of its government contracts, but Chad Rigetti's abrupt resignation as the company's president, CEO, and director in December 2022 raised even more red flags. Rising interest rates also compressed its valuations, cast a harsh light on its persistent losses, and made it tougher to raise cash. As a result, Rigetti's stock price sank to an all-time low of $0.38 on May 3, 2023.

However, last December, Rigetti launched its new Novera QPU -- a 9-qubit commercial version of its own quantum computer, which costs $900,000. A growing list of customers -- including the Superconducting Quantum Materials and Systems Center (SQMS), Air Force Research Lab (AFRL), and Horizon Quantum Computing in Singapore -- have already ordered those QPUs.

By the end of 2024, it plans to deploy its 84-qubit Ankaa-3 system, which can detect over 99% (its "median gate fidelity") of its processing errors. In 2025, it plans to roll out a new modular system architecture that will unite four of its 9-qubit chips in a 36-qubit system with a targeted median gate fidelity of 99.5%. By the end of next year, it plans to deploy a non-modular system with over 100 qubits of processing power and a targeted median gate fidelity of 99.5%. Over the long term, it aims to develop an even more powerful 336-qubit system.

Analysts expect Rigetti's revenue to decline 8% to $11 million in 2024 but grow 47% to $16.2 million in 2025 and surge 130% to $37.3 million in 2026 as it scales up its business. But Rigetti's stock still isn't cheap at 9 times its 2026 sales.

It's too early to tell if it can become the next Nvidia

Rigetti has some grand ambitions for the quantum computing market, but it's too early to tell if it will become the "next Nvidia." It's still a highly speculative play that could easily run out of cash before it scales up its capital-intensive business. But if it succeeds, it could generate massive millionaire-making gains.