D-Wave Quantum Unveils AI Tools. The Stock Has 76% Upside, Says Analyst.

D-Wave Quantum said its tool kit for developers of artificial intelligence models would pave the way for the integration of AI and quantum computing. (Courtesy D-Wave)

There’s no question about it—the race for dominance in the quantum computing industry is heating up.

D-Wave Quantum has taken another step to establish itself as a leader by unveiling a collection of tools for artificial-intelligence developers. The company said Monday that its quantum AI tool kit will pave the way for the integration of quantum computers into modern machine-learning architectures.

Among the offerings is a demo showing developers how to generate simple images using D-Wave’s quantum processors, marking what the company calls “a pivotal step” in the development of quantum AI capabilities.

The link between quantum computing and AI has increasingly come into focus. Scientists and Wall Street bulls alike assert that merging the technologies will help AI algorithms run more efficiently, leading to a theoretical energy-saving and environmental benefit.

D-Wave stressed that its latest offering is just a step in that direction. However, interest in quantum computing only continues to build in anticipation of the day the technology finally breaks out.

In a report published Monday, Needham analysts noted that “both publicly traded and privately held quantum computing companies have been active accessing the capital markets and completing fundraisings over the past several months,” D-Wave included.

Needham raised the price target on D-Wave stock to $20 from $13 and kept a Buy rating. The firm raised the price targets on shares of IonQ and Rigetti Computing to $60 and $18, respectively, from $50 and $15; Needham rates both at Buy.

D-Wave also got a boost from Rosenblatt analyst Kevin Garrigan, who initiated coverage on D-Wave stock last week with a Buy rating and $30 price target. Shares climbed 4.3% to $17.09 on Monday, with the target price suggesting nearly 76% upside.

In Garrigan’s view, D-Wave “offers a differentiated way to gain exposure to the rapidly growing quantum computing market.” While the company is developing both gate-based and annealing systems, Garrigan believes its “first-mover advantage in quantum annealing” positions it to capture a significant chunk of the total addressable market.

Quantum annealing uses quantum physics to find low-energy states of a problem and, therefore, the optimal or near-optimal combination of elements. This approach differs from the more popular gate-based model, which uses so-called quantum gates to manipulate the states of qubits, which are units of storage for quantum computing, and perform calculations.

Against the backdrop of a growing slate of commercial clients and execution on its product road map, Garrigan sees D-Wave achieving a compound annual growth rate of over 66% over the next five years, eclipsing the broader quantum market.

While some analysts argue that D-Wave’s lock on annealing quantum gives it an edge over competitors, not everyone in the scientific community is a fan. Jay Gambetta, International Business Machines’ vice president of quantum, told Barron’s the gate architecture used by IBM is “the only provable architecture that has an exponential speedup” over classical computers.

“I’d like to remind Jay that the only quantum computer that’s actually been able to demonstrate supremacy on important, useful problems is our annealing quantum computer,” D-Wave CEO Alan Baratz responded in an interview with Barron’s. “At the end of the day, what’s more important? A bunch of theoreticians working on a whiteboard in a room, or somebody actually delivering value to the world?”

Let the race continue.

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