Quantum Computing Stocks Surge Amid NASA Contract, Broader Market Momentum

Marcus Lindstrom Quantum computing stocks have been on a tear recently, driven by a combination of positive developments and broader market momentum. Bulls point to the recent contract awarded by NASA to QuantumScape Corporation (NYSE:QS) as a significant catalyst for the sector. The contract, valued at $100 million, aims to develop and demonstrate a solid-state battery for use in space applications. This news, coupled with the broader market rally in technology and consumer discretionary stocks, has lifted the valuations of quantum computing companies.

QuantumScape, a pre-revenue solid-state battery maker, has been one of the primary beneficiaries of this trend. The company's stock has surged over 100% from its late December lows, driven by optimism surrounding its battery technology and the recent NASA contract. Bulls argue that this contract is a critical milestone for QuantumScape, as it demonstrates the potential of its technology in high-performance, mission-critical applications.

However, it's essential to consider the challenges that QuantumScape and other quantum computing companies face. Despite the recent rally, these companies remain far from volume production and profitability. For instance, QuantumScape is expected to report accumulated free cash flow (FCF) of -$1.2B through 2024, even before its projected commercial ramp in 2025. This significant cash burn, coupled with the need for further dilution, makes QuantumScape a favorite among short-sellers, with short interest as a percentage of float of nearly 24%.

Moreover, QuantumScape and other quantum computing companies face intense competition in their respective markets. For example, in the consumer electronics space, companies like Imprint Energy are working on solid electrolyte batteries for IoT devices. This competition, coupled with the complexity of potential capital infusions, makes it challenging to model the expected FCF of these companies through 2025.

Given these challenges, investors should be cautious when considering investments in quantum computing stocks. While the recent rally and positive developments, such as the NASA contract, are encouraging, it's essential to remember that these companies are still in the early stages of their development. Investors should consider alternative ways to play the broader technology and consumer discretionary trends, such as investing in profitable automotive OEMs, leading EV makers, or semiconductor players with a growing automotive business.

Rating: Hold (Revise from Buy).