These 2 Growth Stocks Are Soaring, but Wall Street Expects Downside

Rigetti Computing (RGTI) and Applied Digital (APLD) have experienced significant stock surges, with RGTI up 5,950% and APLD up 273% over the past year, yet face divergent analyst outlooks. Quantum computing firm Rigetti, despite a recent $5.8 million Air Force contract, is trading at an extreme 1,450 times trailing sales on just $7.9 million in annual revenue, prompting analysts to project a 41% decline due to overvaluation. Conversely, Applied Digital, an AI data center provider, secured a substantial $7 billion, 15-year contract with CoreWeave, and while analysts forecast a 57% drop, its valuation is deemed more reasonable, with management targeting $1 billion in annual operating income within five years, suggesting potential for continued growth amid strong data center demand.

Analysis

Rigetti Computing (RGTI) and Applied Digital (APLD) have experienced extraordinary stock surges of 5,950% and 273% respectively over the past year, fueled by investor enthusiasm for quantum computing and AI infrastructure. However, investment bank analysts maintain a cautious outlook, with consensus price targets significantly below current market levels for both firms, contributing to an overall moderately negative market sentiment.

Rigetti's recent three-year, $5.8 million contract with the Air Force Research Laboratory is overshadowed by its extreme valuation; the company's market capitalization of over $15 billion is 1,450 times its $7.9 million trailing-12-month revenue. Analysts project a 41% stock decline, warning that current prices are unsustainable unless revenue rapidly scales over 100-fold.

In contrast, Applied Digital's 15-year, $7 billion contract with AI hyperscaler CoreWeave provides a more substantial revenue foundation, building on its $215 million trailing annual revenue. Despite analyst forecasts for a 57% price reduction, the company's valuation is deemed more reasonable at less than 10 times its projected $1 billion annual operating income within five years, supported by strong AI development investment trends.

This divergence underscores the differing fundamental underpinnings of these high-growth technology plays. While RGTI faces significant valuation risk, APLD's long-term contracts and alignment with robust AI infrastructure demand offer a more compelling, albeit still speculative, growth narrative.

Key Decisions for Investors

• Investors should exercise extreme caution with Rigetti Computing (RGTI) due to its highly speculative 1,450x trailing sales valuation and analyst consensus for a 41% price decline, suggesting significant downside risk
• For Applied Digital (APLD), while analysts project a 57% pullback, its substantial $7 billion CoreWeave contract and strong alignment with AI infrastructure demand warrant a longer-term perspective, potentially offering opportunities on dips
• Investors in both companies should prioritize monitoring actual revenue growth, contract pipeline expansion, and progress towards operating income targets over short-term stock movements