Quantum computing stocks have gone parabolic this month as investors pile into this sector, comparing it to the artificial intelligence industry.
Rigetti Computing (RGTI) stock has soared by over 542% in the last 30 days, while Quantum-Si (QSI) has surged by 65% in the same period.
Quantum Corporation (QMCO) stock price surged by 290%, while IONQ is up 60% in the last 30 days, as I predicted in 2023.
The quantum computing hype has also hit companies with no business in the sector. For example. QuantumScape Corporation (QS) has soared by 20% just because of its name. Unlike the other companies, QS is in the electric vehicle industry, where it is building battery technologies.
There are a few reasons to sell these quantum computing stocks as the surge gains momentum.
Major themes often disappoint
The first major reason to sell quantum computing stocks like Rigetti Computing, Quantum Corporation, and IONQ is that major themes often don’t work out in the long term. This performance is mostly because the market is usually driven by fear and greed.
Greed in quantum computing stocks has risen this year after analysts expressed hope that it could evolve into the next big thing. They also jumped after Google’s big quantum computing milestone earlier this month.
As such, investors who missed the fast-growing artificial intelligence industry have moved to quantum stocks. However, historically, companies often predicted to be big winners in key industries have not performed well. For example, most cannabis and electric vehicle stocks have plunged after their initial surge.
Read more: Here’s why the IONQ and Rigetti Computing stocks have surged
Wyckoff Method markdown is possible
The other reason to sell these quantum computing stocks is the traditional approach known as the Wyckoff Method.
Wyckoff is a theory that explains how financial assets perform over time. These assets move from accumulation, which is characterized by consolidation and is then followed by mark up, which is made up of higher demand than supply. These stocks are now in this markup phase.
They will then move to the distribution and mark-down phase, which is characterized by a steep sell-off. Therefore, there are rising odds that they will move to the markdown phase as investors start to take profits.
In line with the Wyckoff Method, the stocks will crash because of a concept known as mean reversion. This situation is where stocks and other assets drop and return to their mean levels after a strong surge. This means the reversion concept has recently worked well in the crypto industry.
Additionally, their stocks have become highly overbought as their Relative Strength Index (RSI) and Stochastic Oscillators have soared. Stocks often retreat when they become highly overbought.
Quantum computing stocks valuation and dilution concerns remain
Additionally, these quantum computing stocks will crash because their valuation metrics have become highly stretched in the past few months.
IONQ has become a $9.6 billion company despite having just $37.5 million in revenues in the trailing twelve months. It had a $171 million loss in the same period.
Rigetti Computing’s market cap has risen to over $3.18 billion despite generating $11.9 million in revenues in the TTM. It had a net loss of over $61 million during that period.
Quantum Corporation is now a $217 million company with a net loss of over $62 million in the TTM.
Therefore, these companies will likely use the ongoing stock price surge to raise cash in the next few months. Selling shares is one of the most popular ways in which companies raise capital cheaply. Doing that usually dilutes existing shareholders, tanking the stock.
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