D-Wave's Stock Springs Back in the Quantum Computing Race

Key Points

• D-Wave Quantum's strategic partnerships with industry leaders demonstrate the growing real-world applicability of its annealing quantum computing technology.
• The company's recent success in securing the first-ever customer purchase of an on-premise Advantage system signals a significant shift towards commercial adoption.
• D-Wave Quantum maintains a strong cash position, which provides a solid foundation for continuing to invest in research, development, and market expansion initiatives.

D-Wave Quantum Inc. NYSE: QBTS is a pioneering company in the rapidly evolving quantum computing sector. D-Wave has recently seen its stock experience a rebound after a decline. This resurgence is attracting the attention of investors, particularly those interested in the transformative potential of quantum technologies.

As the first commercial supplier of quantum computers and the only company building both annealing and gate-model quantum computers, D-Wave occupies a unique position in this market. This resurgence in D-Wave’s share price is driven by a multitude of factors, including renewed investor interest in the quantum computing sector, positive developments within the company, and a series of analyst upgrades.

D-Wave's Quantum Leap: Quantum Financials

D-Wave's business model centers on its pioneering quantum annealing technology, which it offers through cloud-based access and on-premise systems. Unlike gate-model quantum computers, which competitors like IBM NYSE: IBM and Google (parent company Alphabet NASDAQ: GOOG) are still developing, D-Wave's annealing quantum computers are commercially available today. This distinction positions D-Wave uniquely in the market, allowing it to deliver practical quantum solutions to businesses and organizations.

D-Wave's earnings report for the third quarter of 2024 showed revenue of $1.9 million, a 27% decrease year-over-year. This decline was primarily attributed to a reduction in professional services revenue. However, the company's Quantum Computing as a Service (QCaaS) revenue grew by 41% year-over-year, reaching $1.6 million. Bookings for the quarter stood at $2.3 million, down 22% from the same period in the previous year. Despite the overall revenue decline, D-Wave reported a GAAP gross profit of $1.0 million and a GAAP gross margin of 55.8%. The Non-GAAP gross profit was $1.3 million, with a Non-GAAP gross margin of 67.2%. The company's net loss for the quarter was $22.7 million, with an adjusted EBITDA loss of $13.8 million.

Looking at the nine-month results for 2024, D-Wave reported revenue of $6.5 million, an 11% increase year-over-year. QCaaS revenue for this period was even more impressive, growing 52% year-over-year to $5.1 million. However, the company's net loss widened to $57.8 million, and the adjusted EBITDA loss was $40.6 million. Despite these losses, D-Wave ended the fiscal year of 2024 with a healthy cash position of approximately $178 million, bolstered by the successful completion of $175 million in at-the-market equity offerings. This financing provides the company with the necessary resources to fund its ongoing operations and growth initiatives.

D-Wave achieved a significant milestone with the first customer purchase of an on-premise Advantage quantum computing system. This demonstrated the commercial viability of their technology and indicated a potential shift in their revenue model towards direct system sales, expanding beyond cloud-based services. The company also reported impressive fiscal year 2024 bookings exceeding $23 million, a 120% increase over fiscal year 2023. Q4 bookings reached at least $18 million, a remarkable 500% increase year over year.

Forging the Future: Strategic Initiatives and Partnerships

D-Wave has been actively pursuing strategic partnerships to expand the reach and application of its quantum computing solutions. One notable collaboration is with NTT DOCOMO, Japan's largest mobile phone operator. The two companies are working together to optimize mobile network performance using D-Wave's annealing quantum computing technology. This partnership has already yielded impressive results, including a 15% improvement in the utilization of mobile network resources.

Another key partnership is with Japan Tobacco Inc., where D-Wave's technology is being leveraged for drug discovery. This collaboration aims to pioneer a new process for discovering 'first-in-class' pharmaceutical small compounds, showcasing the potential of quantum computing in the life sciences sector. To further expand its market reach, D-Wave has partnered with Carahsoft, a leading IT solutions provider for the public sector. This collaboration aims to make D-Wave's quantum computing solutions more accessible to government agencies, potentially unlocking significant opportunities in areas such as national defense, intelligence, and infrastructure optimization.

D-Wave has also achieved "awardable" status on the U.S. Department of Defense's Tradewinds platform, a significant milestone that opens doors to potential government contracts. This recognition underscores the value and relevance of D-Wave's technology for addressing complex challenges faced by the defense sector. To support the growing adoption of its quantum solutions, D-Wave has introduced service-level agreements (SLAs) for its Leap quantum cloud service customers. These SLAs provide assurances regarding availability, reliability, and scalability, which are crucial for businesses transitioning their quantum applications into production environments.

The company is also making strides in the field of artificial intelligence (AI). D-Wave is actively exploring generative AI architectures that utilize its quantum processing units (QPUs). By leveraging the unique capabilities of quantum distributions, these architectures aim to facilitate faster and more energy-efficient model training and inference, potentially revolutionizing the field of AI. Underscoring its commitment to data security, D-Wave has completed its second SOC 2 Type 2 audit. This compliance demonstrates the company's adherence to industry-standard best practices for protecting customer data, a critical factor for enterprises considering the adoption of quantum computing solutions.

D-Wave has further strengthened its leadership team with the recent appointments of Sharon Holt, John DiLullo, and Rohit Ghai to its board of directors. These individuals bring a wealth of experience in technology, go-to-market strategies, and business leadership, positioning D-Wave to capitalize on the growing market opportunities.

A Quantum Computing Pioneer

D-Wave Quantum's stock rebound is a testament to the growing interest in the quantum computing sector and the company's unique position within it. As the first commercial supplier of quantum computers and the only company pursuing both annealing and gate-model approaches, D-Wave is at the forefront of this transformative technology. While the quantum computing market is still in its early stages, D-Wave's recent achievements suggest that it is well-positioned to capitalize on the vast opportunities that lie ahead. Investors should continue to monitor the company's progress closely, particularly its ability to translate technological advancements into sustained revenue growth and profitability. The quantum computing sector is evolving rapidly, and D-Wave's performance will be a key indicator of the industry's trajectory in the coming years.