By Mackenzie Tatananni

D-Wave Quantum has emerged as a leader in quantum computing, analysts say, and Wall Street is throwing its support behind the company in a raft of research notes following its latest earnings report.

D-Wave posted fourth-quarter financial results on Thursday. Highlights included a revenue beat and upbeat outlook for the current quarter, with D-Wave forecasting revenue of more than $10 million driven by the sale of a quantum computer to a research institute.

Some details in the report were unsurprising. Revenue was minimal and operating expenses continued to climb sequentially as well as year over year. D-Wave, like other quantum pure-plays, has yet to turn a profit.

While the company's quarterly adjusted earnings loss was wider than expected, this didn't weigh on shares, which closed 19% higher on Thursday even as the S&P 500 veered into correction territory and the major indexes ended the session in the red.

Shares surged another 36% to $9.43 on Friday, while peers Rigetti Computing, IonQ, and Quantum Computing rose 20%, 16%, and 22%, respectively.

Also boosting the stock was a resounding chorus of support from analysts who say D-Wave is one to watch. Piper Sandler analysts led by Harsh Kumar boosted their price target by 220% to $8 from $2.50 and reiterated an Overweight rating.

The analysts said the highlight of D-Wave's latest report was the sale of an Advantage quantum computer to a German research institute, which brought fourth-quarter bookings to $18.3 million, up 502% from the prior year.

The analysts noted that D-Wave is discussing systems sales with three other institutions, though the timing is unclear. "We are also expecting service revenues to increase nicely in the March quarter," they wrote.

In Piper Sandler's view, D-Wave is poised to be "the leader in the annealing quantum computing space for the long run," which justifies the firm's bullish stance on shares.

Needham analysts led by N. Quinn Bolton followed a similar line of thought when they reiterated a Buy rating and $8.50 price target on the stock. They noted that D-Wave became the only publicly traded company with a focus on annealing quantum in 2022, positioning it as "a leader in commercial quantum computing systems."

D-Wave's approach to quantum architecture differs from that of its peers, including larger players such as Google and IBM. Other quantum computing companies focus on a method called gate-based quantum, which is more difficult to scale, a trait that has hindered its adoption at a commercial level.

The analysts noted that D-Wave "views system sales as an increasingly more important aspect of the business model" and "meaningfully strengthened its balance sheet" in 2024.

Part of that was attributed to the sale of the Advantage system to Jülich Supercomputing Centre, where it has already been installed on-site and paired with a supercomputer to enable even more powerful calculations.

"The system was booked in 4Q24 and most of the system revenue will be recognized in 1Q25," with options to upgrade to the next-generation Advantage2 processor once it becomes available, the analysts wrote.

Needham's upbeat take wasn't without a word of caution. "As the company is currently EBITDA negative, investors should be prepared to incur dilutive financings until it achieves EBITDA breakeven," the analysts wrote.

Much of the uncertainty surrounding quantum computing relates to the pace of development. Investors and scientists alike generally accept that fully realized quantum will transform entire industries, from materials science to artificial intelligence. The question is when.

As a result, quantum stocks trade largely on headlines. In January, Nvidia CEO Jensen Huang remarked that "useful" quantum was years in the future, sending shares of D-Wave and peers into a downward spiral.

However, it appears the proverbial tide may be turning in the sector's favor following D-Wave's earnings.

Benchmark analysts maintained a Buy rating and $8 price target on the shares. D-Wave's latest earnings report demonstrated the company's "continued progress across its technology, financials, customer base, and business development initiatives," they wrote.

The launch of the next-generation Advantage2 system later this year should "serve as a catalyst for additional sales opportunities," the analysts noted. Overall, D-Wave is "executing exceptionally well," as the company continues to generate "considerable interest" in both the commercial and research sectors.

D-Wave also claimed to have achieved quantum supremacy in a peer-reviewed paper Wednesday, just one day ahead of earnings. While some researchers questioned the results, analysts seem to believe the development added a dimension of legitimacy to D-Wave's work.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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March 14, 2025 12:29 ET (16:29 GMT)

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