D-Wave Quantum Stock Has a New Fan. Why It’s a ‘Compelling’ Investment Opportunity.

Canaccord Genuity initiated coverage on shares of D-Wave Quantum with a Buy rating and $20 price target. (COURTESY D-WAVE QUANTUM)

The quantum computing sector has a new fan on Wall Street, as Canaccord Genuity became the latest to recommend a stock in the burgeoning industry.

Analyst Kingsley Crane initiated coverage on D-Wave Quantum on Wednesday with a $20 price target. Shares were up 8.8% at $19.13 in recent trading.

The stock has exploded 128% this year and 1,851% over the past 12 months. Other pure-play quantum stocks have followed a similar trajectory, riding a wave of investor enthusiasm and mounting interest in the technology. Rigetti Computing has seen quadruple-digit gains too, with shares rising more than 1,400% over the past 12 months.

The figures may be difficult to digest, considering D-Wave and peers have yet to turn a profit.

Quantum computers encode information using quantum bits, or “qubits,” which are analogous to the units of data in classical computers. Qubits are created by manipulating and measuring subatomic particles such as electrons, photons, and ions.

As qubits allow these particles to exist in more than one state at the same time, this theoretically allows computers to perform calculations that otherwise might take millions of years.

However, quantum computing has yet to reach its full potential. The technology is still error-prone and sensitive to environmental disturbances, impeding its spread on a broader scale.

Crane himself conceded that valuations among publicly traded quantum computing companies have swelled over the past year.

“That said, we think this is a space worthy of inclusion in investor portfolios,” with D-Wave presenting a compelling investment opportunity, Crane wrote.

The analyst is particularly upbeat about D-Wave’s market dominance in the annealing quantum space. As the company itself puts it, “Quantum annealing simply uses quantum physics to find low-energy states of a problem and therefore the optimal or near-optimal combination of elements.”

This architecture differs from the gate-based model used by most competitors, which uses so-called quantum gates to manipulate the states of qubits and perform calculations. In addition to its flagship annealing technology, D-Wave is at work developing gate-based systems as well.

There is a continuing debate over which approach to quantum development is best. Jay Gambetta, IBM’s vice president of quantum, told Barron’s that gate architecture is “the only provable architecture that has an exponential speed-up” over classical systems.

D-Wave maintains its systems are capable of outperforming traditional computers. In March, the company published a peer-reviewed study showing how its Advantage2 system bested one of the world’s most powerful supercomputers at a materials simulation problem—something Crane cites in his ratings report.

The company’s extensive roster of clients strikes Crane as an added benefit. While investors wait with bated breath for the day quantum computing proliferates on a wider scale, “D-Wave is solving problems for customers…and is getting paid to do so,” Crane noted. The company counts Japanese telecom giant NTT Docomo and Canadian supermarket operator Pattison Food Group among its customers.

Most users harness quantum computing power remotely through D-Wave’s Leap cloud platform, but the company “has recently found success selling physical systems directly to the likes of research institutions and engineering firms,” Crane noted. He pointed to $18 million in bookings reported in the fourth quarter of 2024, calling it a landmark development for the company.

And the analyst sees room for growth. As the cloud revenue base continues to grow, “system sales present a powerful auxiliary revenue stream,” Crane noted, though he conceded that introduces “some lumpiness into the model.”

D-Wave CEO Alan Baratz addressed this in an interview with Barron’s in May, saying large, one-time system sales could cause bookings to appear “lumpy,” or fluctuate unpredictably.

In Crane’s view, D-Wave is a force to be reckoned with in the market for quantum computing, as its annealing approach “stands out among a diverse quantum landscape.”

The company “has led innovation in the space since its inception,” Crane said. D-Wave has dominated research and development in the industry for decades, with an average R&D investment of around $35 million each year, he adds.

Moreover, Baratz and Chief Development Officer Trevor Lanting “have deep science and tech expertise and our view is that this team will continue to build on its advantage as revenue now begins to inflect,” Crane wrote. It seems the enthusiasm is infectious. All eight firms polled by FactSet, Canaccord included, rate D-Wave at Buy.

It is shaping up to be a busy week for quantum computing. IonQ unveiled a strategic partnership with Australian company Emergence Quantum on Wednesday, sending the stock up 1%. The benchmark S&P 500 and tech-heavy Nasdaq Composite were up 0.5% and 0.2%, respectively.

Under the terms of the agreement, the partners will work to co-develop quantum hardware including IonQ’s signature ion-trap technology, which traps and manipulates individual ions using electromagnetic fields. Notably, the deal “builds on IonQ’s momentum in Australia and reinforces its commitment to advancing quantum innovation through strategic global partnerships,” the company said.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com