Rigetti's Technical Gains Clash With Grim Revenue Outlook

What happened

A recent article underscores Rigetti Computing's declining sales and management's expectation of no significant revenue growth for several years, casting doubt on its near-term business trajectory. This contrasts with the company's credible technical momentum, including achieving 99.5% median two-qubit gate fidelity on a modular 36-qubit system and targeting a 100+ qubit chiplet-based system by end-2025, as detailed in filings. However, Rigetti's revenue remains sub-scale and heavily reliant on development contracts, with recurring QCaaS/QPU sales still unproven, per the DeepValue report. The financial strain is exacerbated by capital intensity, a $350M ATM program highlighting dilution risk, and intense competition from Big Tech firms. Thus, while technical progress offers potential catalysts, weak revenue fundamentals and financing overhangs present substantial execution hurdles.

Implication

The bleak revenue outlook reinforces the high-risk, pre-scale nature of Rigetti's equity case, where technical milestones may not offset poor commercial traction. Dilution from the ATM program could erode shareholder value if not paired with clear progress, adding to capital-raising concerns. Competition from well-funded peers raises the performance bar, potentially compressing Rigetti's differentiation and market opportunities. Monitoring fidelity deliveries, contract conversions, and ATM usage is crucial, as setbacks could prompt a downgrade from the current neutral stance. Ultimately, patience is required, but the lack of near-term growth underscores the need for cautious positioning until financial sustainability improves.

Thesis delta

The DeepValue report maintains a neutral stance based on balanced technical progress and execution risks. The new information on declining sales and poor revenue outlook strengthens the risk side, suggesting financial sustainability is a more pressing concern that could delay scale if unaddressed. This does not invalidate technical catalysts but shifts emphasis toward monitoring revenue conversion and dilution management as critical for any upgrade potential.