Rigetti Computing (NASDAQ:RGTI) experienced a significant decline in its stock value recently, following a sell recommendation issued in December. Investor inquiries regarding whether to buy the dip have intensified after the sharp drop.
Investment challenges facing Rigetti Computing
Michael Wiggins De Oliveira, an inflection investor and leader of the investment group Deep Value Returns, states that RGTI’s unpredictable growth rates render it a high-risk investment. He emphasizes the lack of clear guidance from the company, suggesting a precarious position ahead. Observations from Wiggins indicate that capital raises will dilute existing shareholders, leading him to remain on the sidelines.
Wiggins previously highlighted that Rigetti’s story is convoluted, suggesting that investors are caught up in a narrative that may not reflect the company’s actual performance. He asserts that RGTI, primarily focused on cloud computing, is potentially years away from achieving scalability.
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Currently, shareholders eagerly await the Q4 2024 earnings announcement, scheduled for March. However, Wiggins notes that this extended wait may expose investors to a further decline in share prices of about 40%. He anticipates that initial buy-the-dip attitudes will shift to new shareholders who must navigate the uncertainties of a business with erratic growth and no forward guidance.
Wiggins underscores the possibility of negative growth rates in the upcoming Q4 earnings report, despite the easier comparables from the prior year. The combination of volatile growth metrics and the necessity for additional capital exacerbates the risks for potential investors.
He also provided an estimate suggesting that Rigetti will require about $70 million of free cash flow in 2025. Based on the company’s financials, it consumed approximately $52 million in cash flow during the first nine months of 2024. Coupled with a recent $100 million capital raise in November, Wiggins theorizes that RGTI may need further funding in 2025, potentially increasing shareholder dilution by 6% if a raise of $150 million occurs.
Valuation questions surrounding RGTI
Wiggins raises concerns over the stock’s valuation, citing volatile revenue figures. He indicates that if RGTI’s revenues reach $10 million in 2025, the stock could be valued at 250 times sales. In a more optimistic scenario of $20 million in revenue, the valuation could improve to 125 times sales, highlighting the sensitivity to small revenue changes.
He comments on the troubling landscape investors face, citing a negative risk-reward scenario as RGTI lacks guidance for the immediate future. While there are potential upside risks if interest rates decline or quantum computing advances sooner than anticipated, Wiggins remains cautious about the prospects for Rigetti Computing, describing it as a narrative still in its early chapters.
Looking ahead, he predicts that $11 per share may serve as an aspirational price point for Rigetti’s stock, stressing that time will reveal if the company can gain traction or remain a cautionary tale in the quantum computing landscape.
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Featured image credit: Rigetti
