The quantum computing sector, often characterized by its ambitious valuations and nascent revenues, has recently become a focal point for activist investors. Across the four primary publicly-traded quantum computing companies—D-Wave Quantum, IonQ, Rigetti Computing, and Quantum Computing Inc.—a common thread has emerged over the past 14 months: all have faced short-seller campaigns. These campaigns frequently highlight a perceived disparity between multi-billion dollar market capitalizations and the relatively modest financial returns generated by their current operations.
D-Wave Quantum, for instance, experienced a notable short attack from Kerrisdale Capital in April of last year. The investment firm contended there was insufficient evidence to prove D-Wave’s quantum systems offered a speed advantage over conventional “classical” computers when tackling complex problems. Despite such pronouncements, D-Wave’s stock price has since seen a significant rebound, tripling its value. Alan Baratz, CEO of the 27-year-old Palo Alto-based firm, attributes these short attacks primarily to financial motivations, suggesting that reports from such campaigns often contain inaccuracies alongside any potential kernels of truth. He specifically cited instances where Kerrisdale’s report allegedly misidentified individuals as customers who had no commercial relationship with D-Wave.
In the wake of Kerrisdale’s report, D-Wave has reported a threefold increase in revenue and secured more than 100 paying customers, including a new $10 million licensing agreement. The company also recently completed a substantial acquisition, purchasing Quantum Circuits (QC) for $550 million. This strategic move aims to address one of the most persistent challenges in quantum computing: error correction. Quantum computers operate on qubits, which, unlike classical bits, can exist in multiple states simultaneously due to quantum uncertainty. This capability offers immense processing potential but also introduces a higher propensity for errors, making the task of isolating useful signals from noise a significant hurdle.
D-Wave’s annual report openly acknowledges the inherent difficulties, stating that building quantum computers demands scientific and engineering breakthroughs that may not always materialize, potentially delaying or even preventing the delivery of future equipment and technical roadmaps. The acquisition of Quantum Circuits, a Yale University spin-off, is intended to mitigate some of these risks. Robert Schoelkopf, QC’s founder, has reportedly developed a method to create qubits that operate with enhanced speed and reduced error rates. Currently, achieving a single “logical” qubit—one free from errors and noise—often requires a substantial number of “physical” qubits for error correction, sometimes as many as 1,000. Baratz believes QC’s technology could drastically improve this ratio, potentially bringing it down to 25 to 100 physical qubits per logical qubit.
The technology from Quantum Circuits is expected to complement D-Wave’s existing core business, which centers on quantum annealing. This method leverages quantum mechanics to identify optimal solutions by detecting the lowest energy state within a complex system of variables. This service is beginning to gain commercial traction, evidenced by the $10 million, two-year licensing deal with an undisclosed Fortune 100 company, offering comprehensive access to D-Wave’s services. The company also counts major corporations like Ford, BASF, Shionogi, and Pattison Food Group among its growing list of paying customers.
Baratz highlights that less than 10% of D-Wave’s client base consists of government research contracts, a figure he suggests differentiates his company from many independent quantum computing firms. He implies that a significant portion of other companies’ reported revenues often stems from government grants channeled into research and development rather than direct commercial sales. He acknowledges the speculative nature driving quantum computing stock valuations, noting that the total addressable market for quantum technology is estimated to be anywhere from $200 billion to $1 trillion. Investors, he suggests, are making calculated bets on the companies they believe are best positioned to capture a share of this potentially enormous market.
