Photonics And AI Demand Will Drive Long Term Upside For This Quantum Leader

Catalysts

About Quantum Computing

Quantum Computing Inc. develops room temperature, integrated photonic quantum systems and thin film lithium niobate chips to deliver practical quantum computing, AI acceleration and secure communication solutions to commercial, government and research customers.

What are the underlying business or industry changes driving this perspective?

• Acceleration of AI and data center workloads is driving urgent demand for energy efficient, high speed computing. This is positioning QCi’s room temperature photonic quantum and reservoir computing platforms to scale from small research contracts to larger production deployments, which should expand revenue and support higher gross margins as volumes increase.
• Global upgrade cycles in telecom and datacom toward higher bandwidth optical networks, reinforced by industry recognition of thin film lithium niobate as a next generation transceiver platform, create a pathway for Fab 1 and Fab 2 to ramp foundry services and product sales. This may improve capacity utilization and lift operating leverage and earnings over time.
• Rising awareness of quantum enabled cyber threats and the need for quantum secure networking at major banks, cloud providers and governments gives QCi a growing funnel for its quantum communication and authentication systems. This supports a transition from pilot projects to recurring deployment revenue and healthier long term net margins.
• The move from prototype systems to planned volume manufacturing by the end of the decade, supported by over $1.5 billion of newly raised capital and a low liability balance, allows QCi to invest aggressively in automation, yield improvement and design reuse. These efforts should help reduce unit costs and support sustained improvement in gross margin and earnings power.
• Expanding collaboration with ecosystem partners such as POET Technologies, membership in industry consortia and early wins with global automotive, financial and aerospace customers enhance QCi’s credibility and market access. This increases the probability of larger multi year contracts that can smooth revenue growth and spread SG&A over a broader sales base.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Quantum Computing's revenue will grow by 216.2% annually over the next 3 years.
• Analysts are not forecasting that Quantum Computing will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Quantum Computing's profit margin will increase from -12519.2% to the average US Tech industry of 6.2% in 3 years.
• If Quantum Computing's profit margin were to converge on the industry average, you could expect earnings to reach $1.1 million (and earnings per share of $0.0) by about December 2028, up from $-68.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7710.3x on those 2028 earnings, up from -39.5x today. This future PE is greater than the current PE for the US Tech industry at 24.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is counting on a long runway of rapid AI and quantum adoption, but current revenue remains very small at approximately $384,000 in the quarter and is heavily tied to a handful of R&D and custom contracts. Any slowdown in industry adoption or failure to convert pilots into repeatable products could limit top line growth and delay meaningful revenue scale.
• QCi is aggressively scaling headcount, manufacturing capacity and R&D ahead of proven demand, which is already driving operating expenses to $10.5 million in the quarter. Management expects SG&A to keep rising, creating a structural risk that costs grow faster than revenue and compress operating margins and earnings over the long term.
• The strategic bet on thin film lithium niobate and photonic quantum architectures assumes this approach will become a dominant standard. Competing quantum and semiconductor platforms may win out or commoditize TFLN capacity, which would undermine utilization of Fab 1 and Fab 2 and pressure gross margin and return on invested capital.
• The large $1.5 billion capital raise has strengthened the balance sheet, but also brings expectations for acquisitions and aggressive expansion in an unsettled M&A market. Overpaying for targets, integration missteps or dilutive deal structures could weigh on shareholder returns and future earnings power.
• Much of the near-term profitability is driven by non-operational items such as derivative liability revaluation and interest income, while the core business produced a net loss of $17.1 million over nine months. If financial markets normalize and mark-to-market gains and interest fade, underlying losses could re-emerge and negatively impact net income and equity value.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $23.67 for Quantum Computing based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $17.3 million, earnings will come to $1.1 million, and it would be trading on a PE ratio of 7710.3x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $12.05, the analyst price target of $23.67 is 49.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.