D-Wave Pushes Back on Short Seller Case With Strong Earnings

Key Points

• D-Wave Quantum has emerged as a polarizing quantum computing name for investors.
• While the company has achieved notable technological breakthroughs, prominent short sellers have offered arguments attempting to dismantle D-Wave's chances of continued success.
• The firm's recent earnings report is a standout and may offer bullish investors numerous reasons to affirm their support of D-Wave.

After rising by an astonishing 683% in the last year, quantum computing firm D-Wave Quantum Inc. NYSE: QBTS has left investors divided. On one hand are the bulls who feel that the company's recent technological achievements have the potential to upend computing as we know it; these investors suspect that, despite signs of being overvalued, D-Wave has ample room to continue to ascend. 

On the other hand, bearish investors suspect the company will eventually come crashing down, either due to overenthusiasm by other investors or failure to live up to its hype.

Short sellers have recently made a case against D-Wave, arguing that the company's technology is not likely to usher in a quantum revolution after all and that its path to sustained and growing profitability is fraught.

However, the company's early-May first-quarter 2025 earnings report might be a point in favor of the bulls, as D-Wave posted records in revenue, gross margin, and other metrics.

Solid Revenue Growth May Suggest a Path Forward

Revenue has long been a sticking point for investors hesitant to take up a position in D-Wave. Skeptics question the company's ability to generate revenue—and, more fundamentally, the marketability of its technology and products at this stage. Jensen Huang, CEO of chip giant NVIDIA Corp. NASDAQ: NVDA, sent quantum stocks sliding in January 2025 when he speculated that useful quantum computers (with broad applications for business and personal use) were likely two decades away. While D-Wave may be at the forefront of one line of quantum technology development, if a solid path to revenue gains is not in sight for many years, investors will shy away.

Fortunately, the company's first-quarter revenue of $15 million is one data point pushing back at this timeline. D-Wave's revenue surged by more than 500% year-over-year (YOY), thanks in large part to the sale of a quantum computing system. A single system sale does not automatically suggest revenue gains are in store going forward, but it may nonetheless provide some reassurance that D-Wave's products have a market. Along with the revenue boost, D-Wave also increased its customer base over this period.

Strong GAAP Gross Profit and Cash Position

Along with concerns about revenue, investors also hesitate regarding D-Wave's path to consistent profitability. While the company posted a net loss of $5.4 million for the first quarter, this is an improvement of $11.9 million compared to the prior-year quarter. Perhaps more importantly, D-Wave's GAAP gross profit came in at $13.9 million, a quarterly record for the company and an increase of more than 700% YOY.

D-Wave's strong GAAP gross profit performance is thanks in part to its higher margin, high-profile sale in the first quarter—GAAP gross margin for the period reached 92.5%, up from 67.3% in the same quarter of 2024. With improving gross margins also comes a more favorable cash position, which is especially important as D-Wave continues to develop new technologies while it is not yet generating substantial revenue.

The company ended the quarter with more than $304 million in cash and equivalents; D-Wave leadership said that this stockpile is sufficient to support the company until it reaches consistent profitability.

In the Clear, or Still Reason to Pause?

While D-Wave's earnings report was sufficiently positive to send shares skyrocketing by about 50% in the days immediately following its release, cautious investors may not yet be fully convinced about the company.

For example, bookings (received customer orders that are expected to generate future net revenues) decreased by almost two-thirds YOY to $1.6 million. And while the company's customer base grew, it still only had a pool of 133 customers as of quarter's end. These may be reminders for some investors that D-Wave's position remains precarious.

In the days following D-Wave's earnings announcement, analysts at both Benchmark and Needham & Co. boosted their price targets for the firm. Even so, with a consensus price target of $10.17, shares of QBTS currently exceed analyst predictions, suggesting that short-term upside potential may be limited or non-existent.

Finally, though D-Wave has noted some promising technological achievements, investors should keep in mind that many experts still believe functional and commonplace quantum computing is still a long way off—and that major tech firms and an array of competitors are also working to be the first to bring these products to market.