Should You Invest in Quantum Computing Stocks During the TACO Trade?

The article discusses the "TACO" trade, a strategy of buying the dip during market volatility caused by fluctuating tariff rhetoric, and examines quantum computing stocks IonQ and Rigetti Computing as potential plays. While IonQ and Rigetti experienced significant gains in 2024, they have declined this year and, despite these declines, the author argues that their high price-to-sales ratios and substantial net losses make them overvalued and not suitable "buy the dip" candidates within the TACO trade framework, anticipating further valuation compression.

Analysis

The current market environment, characterized by breakeven year-to-date returns for the S&P 500 and Nasdaq Composite as of June 5, has given rise to short-term trading strategies like the "TACO" trade, which involves capitalizing on market dips triggered by fluctuating rhetoric on tariff policies. Within this context, quantum computing stocks, specifically IonQ (IONQ) and Rigetti Computing (RGTI), are examined. Despite extraordinary gains in 2024, with IonQ soaring 237% and Rigetti climbing 1,450%, both have seen significant declines in the current year, with IonQ down 12% and Rigetti down 28% as of June 5. However, these declines do not necessarily present a buying opportunity. The core issue lies in their valuations, which appear detached from fundamental performance; IonQ and Rigetti have generated a combined revenue of approximately $50 million over the last twelve months while incurring a substantial net loss of $460 million. Their elevated price-to-sales ratios suggest their stock prices are buoyed more by a bullish long-term narrative surrounding quantum computing's potential rather than current operational success. Consequently, even after recent price drops, these stocks are considered overvalued, with a strong expectation of further valuation compression and potential for continued downward pressure on their share prices. This assessment is supported by a strongly negative sentiment score (-0.8) for both IONQ and RGTI.

Key Decisions for Investors

• Investors should exercise caution and avoid chasing sell-offs in IonQ and Rigetti Computing, as their current valuations remain elevated despite recent share price declines and are not supported by underlying fundamentals such as revenue generation and profitability.
• Given the significant net losses and nominal sales relative to their market capitalizations, the risk of further valuation compression for these quantum computing stocks is considerable, suggesting potential for continued share price declines.
• The 'TACO trade' strategy of buying dips should be applied selectively; these specific quantum computing stocks are not deemed suitable candidates due to their overvaluation and fundamental weaknesses, irrespective of broader market volatility.