Summary I am initiating a 'Buy' rating on D-Wave Quantum with a fair value of $11 per share due to its superior technology and potential in crypto mining. D-Wave's quantum computing technology could significantly reduce energy costs in cryptocurrency mining, accelerating the commercialization of quantum computers. The company's annealing and gate-model quantum computers provide unique advantages, with strong commercial applications and growing customer interest. Despite customer concentration risks and ongoing capital needs, D-Wave's growth potential and technological advancements justify a positive outlook. D-Wave Quantum ( QBTS ) is a leading quantum computing company, researching both annealing and gate-model quantum computers. Their recent published paper demonstrates their quantum computing technology could potentially be used in cryptocurrency mining process to generate and validate blockchain hashes, significantly reducing energy consumptions. I favor D-Wave’s superior technology and the potential application in crypto mining could speed up the commercialization of quantum computers. I am initiating with a ‘Buy’ rating with a fair value of $11 per share. The potential big market for quantum computing is evident. As shown in the slide below, the near-term total market size ((TAM)) is estimated to be $2 billion to $5 billion over the next 3–5 years. Over the long term, the technology could be applied in simulation, combinatorial optimalization and other linear algebra for machine learning etc. D-Wave Quantum Investor Presentation However, the market has more concerns about how quickly quantum computing can reach full practicality. In January 2025, Jensen Huang said practical quantum computers were still 15 to 30 years away. But he changed his view in March, acknowledging quantum technology’s impact on industries and announced to accelerate its quantum research efforts in the field. While I think it is still too early to judge when quantum computers will reach its full practicality, I think D-Wave has several technology advantages in the quantum computing market. Firstly, they provide both annealing and gate-model quantum computers. Quantum Annealing Algorithms are more complicated than gate-model; however, the annealing model is more robust against noises and errors. The annealing model does not rely on GPUs to correct computing errors. I think both models can be used in different applications. D-Wave has strong advantages in its annealing model, which provides them a unique advantage over other quantum companies. Secondly, D-Wave published an article on March 19 th , demonstrating its capabilities to generate and validate blockchain hashes. According to the research paper, energy expenses for crypto mining account for just 0.1% of the total computation cost on D-Wave quantum computers. The diagram below shows the quantum hash generation and its use as a proof of block security. The paper highlights that a quantum hash function has a nonzero likelihood of producing different outputs with proof resistance. In other words, the quantum computers could potentially be used in crypto hash generation and validation, significantly reducing the energy costs associated with cryptocurrency mining. D-Wave Quantum Research Paper Lastly, D-Wave has already built some commercial applications with industry players including Pattison Food and NTT Docomo in Japan, as depicted in the slide below. D-Wave’s technology has been used in Pattison Food’s e-commerce auto-scheduling workloads, optimizing the overall manual efforts. D-Wave Quantum Investor Presentation D-Wave released its Q4 FY24 result on March 13 th , exiting the fiscal year with 128% growth in bookings. I think its stock price will be tied to its commercial momentum moving forward. On March 13, the Jülich Supercomputing Centre ((JSC)) in Germany purchased a D-Wave quantum computer with more than 5,000 qubits and 15-way connectivity. During the earnings call , the management indicated the quantum computer will connect with the Jupiter supercomputer, Europe’s first and only exascale high-performance computer. I am encouraged by the growing interests from potential customers in recent months, which signals that D-Wave’s quantum computing technology is getting closer towards commercialization. Outlook and Valuation During an interview with Bloomberg, D-Wave’s CEO, Alan Baratz, predicts commercial quantum blockchain could emerge within 1-2 years. In addition, its 5,000-qubit systems don’t rely on Nvidia’s ( NVDA ) GPU for error correction due to its annealing model. I think the recent research paper and technology advancement have provided solid evidence that quantum computing could play a role in the crypto mining industry. As such, I forecast D-Wave’s growth will start to accelerate from FY27. Before that, I only assume 20% annual revenue growth, which doesn’t factor in any real commercialization. Starting in FY27, I forecast its revenue will accelerate to 200% year-over-year growth; then decelerate to 100% annual growth from FY29 onwards. With these assumptions, the total revenue is only estimated to reach $229 million in FY29, representing around 10% of total market share. So, I think my assumptions are quite conservative. As a startup, D-Wave is still burning cash with negative operating margin. Due to the operating leverage, I anticipate the company’s gross profits, SG&A and R&D as a percentage of total revenue will decline over the next 10 years, reaching 18% operating margin by FY24. The detailed assumptions can be founded below: D-Wave Quantum DCF The cost of equity is calculated to be 13.2% assuming: risk-free rate 4.2%; beta 1.8; equity risk premium 5%. I set the terminal growth rate to be 6% in the model. I calculate the free cash flow from equity ((FCFE)) as follows: D-Wave Quantum DCF I discount all the FCFE for the next 10 years and terminal value, and the total equity value is calculated to be $2.34 billion in total with $11 per share. The steps are as follows: D-Wave Quantum DCF Risks D-Wave is a relatively small company, generating only $8.8 million revenue in FY24. As such, they face customer concentration risks, with its top 3 customers each representing more than 10% of total revenue. If any of these customers terminate the partnership with D-Wave, the company will face significant challenges. As a startup, D-Wave requires ongoing capital funding to support its growth. In FY24, they raised $150 million in gross proceeds via At-the-Market Equity Offering ((ATM)), bringing its total net cash balance to $300 million. As D-Wave continues to burn cash, the company will need more capital raises in the near future. Recently, Nvidia ((NVDA)) announced to accelerate its quantum research center ((NVAQC)) and integrate its AI supercomputers with quantum computers. As Nvidia has strong R&D resources in supercomputers, GPU as well as InfiniBand networking platform, Nvidia could become a strong competitor to D-Wave in the future. Conclusion With both annealing and gate-model, D-Wave is at the forefront of quantum computing technology. With the potential application in crypto mining, D-Wave’s full commercialization could be faster than the market anticipates. I am initiating with a ‘Buy’ rating on D-Wave Quantum, with a fair value of $11 per share.
