Key Points
Tech companies fell hard in July, including D-Wave, as investors questioned whether all of their spending would turn into profits.
D-Wave's research and development costs more than doubled in the first quarter.
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Shares of the quantum computing company D-Wave Quantum (NASDAQ: QBTS) plunged last month as investors grew increasingly skeptical that big bets in the tech sector would pay off, including artificial intelligence and quantum computing.
Shares of D-Wave fell 24.6% in July, according to data provided by S&P Global Market Intelligence. And if the recent sell-off is any indication, D-Wave's shares could remain volatile for a while.
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Investors are concerned about spending
Tech investors have been increasingly worried that all of the spending that's happening in the sector won't be worth the cost.
One of the best examples of this came last month, when Alphabet reported its second-quarter results, saying that capital expenditures would rise to $205 billion this year and would likely be higher next year. The spending sent Alphabet's free cash flow into negative territory for the first time in more than two decades.
Alphabet's stock fell after the company released its quarterly results, as investors lost faith that the company's bets in AI are worth the cost. And while D-Wave isn't an AI company, its shares suffered the same fate in July because investors took a similar view that D-Wave's bets on quantum computing won't pay off.
D-Wave reported a net loss of $18.4 million in the first quarter and had just $2.9 million in revenue. And its costs are rising, too, with research and development spending more than doubling to nearly $26 million, and its General and Administrative costs surging 150% to over $20 million.
Investors are looking around and seeing costs rise for tech companies, and they're beginning to question whether holding shares is worth the risk.
D-Wave isn't escaping this sentiment, especially considering that the stock is very expensive, with a price-to-sales (P/S) ratio of 496, compared to the tech sector average P/S ratio of about 6.
More insight coming, but volatility could be ahead
D-Wave will report its second-quarter results on Aug. 6, and analysts' consensus estimates are expecting sales of about $43 million, a 75% increase from the year-ago quarter.
But investors will likely be more focused on D-Wave's spending, and with the company still unprofitable and its shares trading for such a high premium, it's not wrong for them to be skeptical.
It's difficult to say how long investors might remain skeptical of unprofitable tech companies. But it appears that a real shift is underway away shareholders in what they expect from companies.
All of which means that D-Wave's shares could remain volatile in the near term as shareholders question whether waiting around for quantum computing profits is worth the risk.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
