Pacific Trader: D-wave hitches its future to the AI boom

After 25 hard years spent trying to commercialize quantum computing, the Burnaby company’s fortunes are looking up

The stock: It’s sometimes called the “valley of death”—the gap between proof of concept and the commercialization of technology. Burnaby-based quantum computing pioneer D-wave Quantum (NYSE:QBTS) has been clambering through this defile for most of its 25-year existence. But after watching others question its accomplishments, giant rivals move into its niche and its own stock lose 90 percent of its value since going public via a SPAC (special purpose acquisition company) in 2022, D-wave’s fortunes are looking up. Closing at US$1.16 on Tuesday (June 18), QBTS shares have risen 41.5 percent year to date.

The drivers: Forget about dominating the quantum computing field. Ain’t gonna happen. But D-wave is now serving 75 customers including Mastercard, Johnson & Johnson, Lockheed Martin and the Bank of Canada. Instead of selling discrete hardware and software systems, it switched to helping customers solve particular problems using a cloud service that taps into its own supercomputers in B.C., California and Germany. That lowers the cost and barriers to entry. D-wave’s intellectual property base features more than 220 U.S. patents and another 100-plus pending.

For those who understand quantum computing, the company specializes in “annealing” as opposed to the “gate model” systems offered by competitors. Annealing is good for solving optimization problems; what it can’t do is test differential equations used in fields such as chemistry. As CEO Dr. Alan Baratz told the Needham Technology, Media and Consumer Conference in May, “There’s a class of problems that only we can address.”

Plus, you may have witnessed the fuss stock markets have made over artificial intelligence (AI) lately. D-wave has signed a partnership with Zapata AI of Boston to deliver quantum generative AI apps for purposes such as drug discovery, logistics management, manufacturing optimization and weather modelling.

For all that, D-wave’s revenues are still disappointingly small, though growing fast. Revenue for the first quarter rose 56 percent to US$2.5 million from US$1.6 million a year earlier. The company reported a net loss of US$17.3 million for the quarter, or 11 cents per share.

Word on the street: Six of the nine analysts covering QBTS rate it a “strong buy” and three, a “buy.” The average 12-month price target is US$3.

Coming and going: The board of Vancouver-based Copperleaf Technologies (TSX:CPLF), which develops software for utilities and other operators of major infrastructure, has agreed to a takeover offer from IFS AB (Industrial and Financial Systems) of Sweden worth approximately $1 billion. The $12-per-share purchase price, if accepted by shareholders, would bring the stock’s year-to-date return up over 100 percent.