Rigetti Computing (RGTI) Stock Falls 8.8% on TD Cowen Downgrade

TLDR

• Rigetti Computing (RGTI) stock dropped 8.8% Thursday to $14.99 after TD Cowen downgraded shares from buy to hold, citing funding concerns and competitive pressures
• The company may need over $300 million for a new fabrication facility by 2028 to improve chip quality, against $525 million in cash and $70-80 million annual burn rate
• Rigetti missed selection for DARPA’s QBI Stage B program, which offers $1 million+ quarterly funding and access to multi-year quantum projects
• The stock trades at a premium 255x EV/Sales multiple compared to IonQ at 205.7x and D-Wave at 167x, despite weaker revenue performance
• Q4 results showed revenue of $1.95 million (down 18.1% year-over-year) missing estimates, though EPS of -$0.03 beat expectations of -$0.05

Rigetti Computing shares tumbled 8.8% Thursday, closing at $14.99 after TD Cowen analyst Krish Sankar downgraded the stock from buy to hold. The move came as Sankar raised concerns about funding requirements and mounting competitive headwinds in the quantum computing space.

Rigetti Computing, Inc., RGTI

The company traded as low as $14.79 during the session. Volume reached 34.94 million shares, about 7% above the average daily trading volume of 32.69 million shares.

The analyst believes Rigetti may need to build a new fabrication facility around 2028 to push chip fidelity above 99.9%. This would require modular chiplet designs and advanced semiconductor tools to reach the company’s goal of 10,000+ qubits.

The price tag for a new 200mm or 300mm fab could exceed $300 million. Rigetti currently holds $525 million in cash but burns through $70-80 million annually, raising questions about the timing and financing of such a project.

DARPA Program Snub Raises Competitive Concerns

Sankar expressed surprise that Rigetti failed to secure selection for DARPA’s QBI Stage B program. The Quantum Benchmarking Initiative tests quantum technology for utility-scale applications.

Stage B participants receive $1 million or more in quarterly funding, compared to just $300,000 for Stage A. The program also provides insights into future system requirements and access to multi-year quantum funding opportunities.

The exclusion suggests Rigetti faces tougher competition from rivals in the space. IonQ and D-Wave Quantum both received downgrades of 6.9% and 4.2% respectively on Thursday.

Valuation Concerns Mount

Sankar highlighted that Rigetti trades at a premium to its quantum computing peers despite lagging in revenue and customer contracts. The company’s enterprise value-to-sales multiple stands at 255x, well above IonQ’s 205.7x and D-Wave’s 167x.

The analyst called consensus 2027 revenue estimates overly aggressive given limited visible opportunities. Rigetti’s most recent quarter showed revenue of $1.95 million, down 18.1% year-over-year and below the $2.17 million estimate.

The company did post a small earnings beat. EPS came in at -$0.03 versus expectations of -$0.05.

Benchmark also cut its price target from $50 to $40 but maintained a buy rating. The consensus rating across 12 analysts remains moderate buy with an average price target of $32.60, implying 117% upside from current levels.

The stock carries a negative net margin of 4,741.49% and a negative return on equity of 21.98%. Analysts expect full-year EPS of -$0.34.

Rigetti targets a 1,000+ qubit quantum processing unit by 2027 with 99.8% two-qubit fidelity. The company’s 108-qubit Cepheus-1 chip faced a one-quarter delay, underscoring quality challenges as it scales production.

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