Why Shares of D-Wave Quantum Are Sinking This Week
Since last Friday, shares of D-Wave Quantum (NYSE: QBTS) fell nearly 15% as of the market close on Thursday. The stock also traded lower on Friday. While the quantum computing sector experienced some good news this week, D-Wave also announced an at-the-market (ATM) stock offering to potentially raise new capital.
A potentially dilutive event
D-Wave's ATM offering is with several brokerages and investment banks and will allow the company from time to time to conduct the "issuance and sale" of common stock for up to $400 million. The word issuance indicates that new shares could be offered to raise capital, which would be dilutive to existing shareholders.
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In a filing with the Securities and Exchange Commission( SEC), D-Wave also said that cash balances on hand as of March 31 are enough "to fund the company to profitability." D-Wave plans to use any potential proceeds for general corporate purposes, including funding capital expenditures (capex), acquiring new companies, or expanding the business, as well as for general working capital purposes.
The news is disappointing because it comes during a week when Nvidia's CEO Jensen Huang praised quantum computing. "We are within reach of being able to apply quantum computing in areas that can solve some interesting problems in the coming years," he said. Few CEOs can move the market, but Huang is one of them, being one of the most influential people in the artificial intelligence (AI) sector. Other quantum computing stocks jumped this week.
What a run it's been
Shareholders never like to see dilutive capital raises, but with D-Wave trading at an extremely high valuation, this is often when management will try and bring in additional capital to fund growth. Either way, it's been an incredible run. D-Wave's stock is up 1,268% over the last year and currently trades at 191 times forward sales.
While D-Wave appears to be making real progress toward eventually mass producing quantum computers, it's very difficult to buy stocks at these kinds of meteoric valuations. I wouldn't recommend anything more than a small, speculative position at this time.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.