What’s The Downside Risk For Rigetti Computing?

Rigetti Computing’s stock is up a stellar 2,000% in a year. But why? It was really a perfect storm of a few factors. First off, there’s been a ton of hype around quantum computing lately, and a lot of money is pouring into the industry. This got investors excited. Then, with the massive AI boom, many people just started lumping quantum companies like Rigetti in with that whole narrative.

Since there are only a handful of publicly traded quantum companies, RGTI became a rare and hot stock to own. On top of that, big-time institutional investors started buying in, which gave the stock even more credibility. This all created a huge wave of momentum, with retail investors jumping in out of fear of missing out, driving the price even higher.

But here’s the thing – yes, quantum seems to be the future, but it’s a future which is still years away from commercial application. The technology has limited real-world applications today and is mostly focused on simulating chemistry and physics.

Look at RGTI’s fundamentals:

We agree, quantum stocks are all about future growth, and we ourselves did a story on the upside potential. But did you ever think of the downside risks? We’ll delve into the risks in the sections below. But, if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 91% since its inception. Separately, see – Oracle Stock To $900.

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The Brutal Truth About Market Cycles

Markets won’t keep moving in one direction, which we’ve been seeing lately, and quantum computing is years away from commercial use. Think about it – there are many risks that could derail Rigetti’s stock growth engine.

When things go bad, such speculative stocks don’t fall – they get hammered. This isn’t an assumption. Let’s look at 2022 when high inflation led to interest rate hikes and markets crashed by 25% from their peak. Do you know how much RGTI stock crashed? It was a whopping 96% fall from $9 to $0.40.

The Downside Risk Scenarios

What could trigger the next collapse?

• Market-wide correction: Any shift in risk sentiment – whether from inflation fears, geopolitical tensions, or simply profit-taking – hits speculative stocks first and hardest.
• Competition reality check: Well-established tech giants like Alphabet, Honeywell, and IBM appear to be making the most headway in quantum computing. This will likely remain the case, given the billions of dollars needed to fund research. In fact, Honeywell recently announced a major milestone for its quantum computing division, Quantinuum, which has successfully raised approximately $600 million in new equity capital. The funding round was completed at a pre-money valuation of $10 billion, underscoring strong investor confidence in the company’s technology and its future potential. Now, how does Rigetti – a company with $10 million in revenue – compete with such giants?
• Timeline disappointment: Any indication that quantum commercialization is taking longer than expected could trigger massive sell-offs.
• Dilution concerns: The company already raised $350 million through share offerings this year. More dilution is likely as they burn through cash.
• Regulatory or technical setbacks: The quantum space is still experimental. Any major technical hurdle or regulatory challenge could devastate sentiment.

The Bottom Line: Are You Prepared?

So what’s the real downside risk for RGTI stock from its current levels of $16? If history is any guide, it’s under $2. Are you prepared for it?

The 2022 crash saw RGTI lose 96% of its value. Even if we assume a “moderate” correction of 75-80%, we’re looking at stock prices in the $3-4 range. But given the speculative nature and weak fundamentals, a return to sub-$2 levels isn’t just possible – it’s historically precedented.

The purpose of this analysis isn’t to be bearish for the sake of it. It’s to make investors aware of what the downside risk is with RGTI stock. It may or may not happen. But the risk element is surely high, and anyone holding this stock should be prepared for potentially devastating losses.

For investors seeking exposure to growth opportunities without the extreme volatility of speculative single stocks, you could 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.

Remember: in speculative growth stocks, the same momentum that drives spectacular gains can create equally spectacular losses. The question isn’t whether RGTI will face volatility – it’s whether you can stomach what that volatility might look like on the downside.

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