Rigetti Computing (RGTI) Stock Plunges on Downgrade and Funding Concerns

TLDR

• Rigetti Computing (RGTI) stock plunged 8.8% Thursday to $14.99 after TD Cowen downgraded from buy to hold
• Analyst warns company needs $300 million+ for new fab by 2028 with only $525 million cash and $70-80 million annual burn
• Missing DARPA’s QBI Stage B program means losing $1 million+ quarterly funding and competitive advantage
• Stock trades at 255x EV/Sales versus IonQ’s 205.7x and D-Wave’s 167x despite weaker fundamentals
• Q4 revenue fell 18.1% to $1.95 million but EPS of -$0.03 beat estimates

Rigetti Computing stock crashed 8.8% Thursday after TD Cowen analyst Krish Sankar downgraded shares from buy to hold. The quantum computing company closed at $14.99 with 34.94 million shares changing hands.

Rigetti Computing, Inc., RGTI

Sankar cited three main concerns driving his rating change. The analyst maintained earnings forecasts but removed his price target entirely.

The first issue centers on funding requirements for future growth. Rigetti may need a new fabrication facility by 2028 to push chip quality above 99.9% fidelity.

That facility could cost over $300 million. The company holds $525 million in cash but burns $70-80 million per year, creating potential financing pressure.

Sankar noted that Rigetti’s 108-qubit Cepheus-1 chip already faced a one-quarter delay. Advanced semiconductor tools will be critical to reach the company’s 10,000+ qubit targets.

DARPA Snub Hurts Competitive Position

The second concern involves Rigetti’s exclusion from DARPA’s Quantum Benchmarking Initiative Stage B program. Sankar called the miss surprising given the company’s technical capabilities.

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

The exclusion suggests rivals are pulling ahead in the race for government contracts. IonQ and D-Wave also dropped Thursday, falling 6.9% and 4.2% respectively.

Premium Valuation Raises Red Flags

Sankar’s third point focused on valuation. Rigetti trades at 255x enterprise value-to-sales, well above IonQ at 205.7x and D-Wave at 167x.

The premium looks stretched given Rigetti’s revenue performance. Fourth quarter sales came in at $1.95 million, down 18.1% year-over-year and below the $2.17 million consensus.

The company did beat on earnings. EPS of -$0.03 topped estimates of -$0.05 for the quarter.

Still, Rigetti posted a negative net margin of 4,741.49% and negative return on equity of 21.98%. Analysts expect full-year EPS of -$0.34.

Sankar called 2027 revenue estimates too aggressive given limited visible customer opportunities ahead. He believes Rigetti now offers only a balanced risk-reward profile at current prices.

Benchmark also trimmed its target from $50 to $40 but kept a buy rating. The consensus across 12 analysts stands at moderate buy with an average target of $32.60.

That implies 117% upside from current levels. Eight analysts rate shares a buy, three say hold, and one recommends sell.

TD Cowen’s Sankar ranks as a five-star analyst on TipRanks, placing #40 out of 12,108 tracked analysts. He maintains a 66% success rate with average returns of 41.90% per rating.

Rigetti targets a 1,000+ qubit quantum processing unit by 2027 with 99.8% two-qubit fidelity. The company uses superconducting gate-based quantum technology.

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