Quantum Computing Inc. (NASDAQ: QUBT), a company developing quantum-compatible chips and photonic hardware for high-performance computing, AI, and cybersecurity,  is up a staggering 3,000% in the last twelve months. Why? It’s been a perfect storm of hype and momentum. First, there’s the broader quantum computing excitement that’s swept through Wall Street. Second, the AI boom has investors lumping quantum companies into that narrative, even though they’re fundamentally different technologies. Third, Quantum Computing Inc. has been making some strategic moves and announcements that have kept the buzz alive.

The company has been positioning itself in the quantum technology space, announcing various partnerships and developments that sound impressive on paper. But here’s the sobering truth – yes, quantum computing seems to be the future, but it’s a future that’s still years away from commercial application. The company has a trivial revenue base of just $263,000. Of course, it’s burning cash – with a net income margin of -29,054% and an operating cash flow margin of -7,180%.

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The Fundamental Problem

We agree, quantum stocks are all about future growth , and we’ve written about the upside potential for stocks like RGTI ourselves. But did you ever think about the downside risks? Think about it logically. There are many risks that can derail Quantum Computing Inc.’s stock growth engine, and when things go bad, such speculative stocks don’t fall – they get hammered. This isn’t just an assumption.

Historical Precedent: QUBT’s Track Record of Devastation

Let’s look at what happened to QUBT during previous market downturns. During the 2022 inflation shock when the Fed hiked interest rates aggressively, QUBT stock crashed a catastrophic 93% from $9.62 to $0.67. Even during the 2020 Covid-19 pandemic, the stock plummeted 73% from $5.97 to $1.62. Think about that for a second – these aren’t modest corrections. These are near-total wipeouts. That’s the difference between speculative stocks and real businesses with actual cash flows.

The Risk Factors That Can Crush QUBT

  1. Commercial Reality Gap: Despite all the announcements, Quantum Computing Inc.’s technology is still primarily in development stages. The gap between “interesting technology” and “billion-dollar business” remains enormous, especially with a revenue base of only $263,000.
  2. Competition Intensification: Tech giants like IBM, Google, Microsoft, and Amazon are pouring significant amount of money into quantum computing research. These companies have the resources to outspend and outlast smaller players in what’s becoming a capital-intensive race.
  3. Cash Burn Reality: With margins like -29,054% on net income and -7,180% on operating cash flow, QUBT is essentially a cash incinerator betting on a technology timeline that is still far out. See how Quantum Computing Inc.’s financials compare with some of the tech stocks.
  4. Dilution Catastrophe: The company recently announced a $750 million equity placement. This massive equity raise will severely dilute existing shareholders. When companies are burning cash at this rate, they have no choice but to keep issuing shares, creating a vicious cycle where your ownership percentage keeps shrinking.
  5. Market Sentiment Shifts: When risk appetite disappears – these momentum-driven stocks get obliterated first. QUBT’s history proves this beyond doubt.

What’s the Real Downside Risk?

So what’s the real downside risk for QUBT stock from its current levels?

If history is any guide, it’s a potential drop of 70-93% or more to levels between $2 to $7.

Are you prepared for it?

That’s not fear-mongering about QUBT – that’s what actually happened during both 2020 and 2022. And the fundamentals haven’t changed significantly. The company is still burning cash at an alarming rate, still years away from meaningful commercialization, still facing massive dilution from equity raises, and still trading on pure hype and future potential.

If this level of risk makes you uncomfortable, you can explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

The Bottom Line

Look, the purpose of this analysis is to make investors aware of what’s the real downside risk with QUBT stock. It may or may not happen. But the risk element is surely high. The company’s financials are among the worst you’ll see for a publicly traded company – a revenue base under $300,000, negative margins exceeding -29,000%, and now massive shareholder dilution from a $750 million equity raise. When the music stops – and QUBT’s history shows it stops violently – investors holding speculative stocks face potential catastrophic losses.

You’re not buying a piece of a profitable business; you’re placing a bet on quantum computing becoming commercially viable soon enough for Quantum Computing Inc. to survive the cash burn, successfully deploy $750 million in new capital, and stand tall in a market with rising competition from tech giants with far deeper pockets. It all comes down to whether you can stomach what the volatility might look like on the downside, if things don’t go as expected with Quantum Computing Inc.

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