Here's why Rigetti's (RGTI) stock is suddenly plunging

With multi-trillion-dollar investments in data centers, no sector is generating more hype at the moment than artificial intelligence (AI).

The fact that it will take years for any of these data centers to begin generating any revenue does not seem to concern most investors.

But while AI is generating the lion's share of the hype in Silicon Valley at the moment, quantum computing is not far behind.

And unlike AI, which is already demonstrating real-word applications, quantum computing is mostly seen as being an experimental technology for at least the rest of the decade.

And yet, even if the sector is years away from a ChatGPT moment, investors remain extremely bullish on the sector, sending quantum stocks soaring.

Look no further than Rigetti Computing (RGTI), which has seen its stock surge nearly 1,651% over the past 12 months. It is also up 61.8% YTD.

However, after surging for the past year, Rigetti might have finally hit a wall.

The stock is down 25.4% over the last five days, and has sunk 46.8% across the past month.

Although the quantum startup's stock will almost certainly rally again, there are two things at play here.

First, investors seem to be pulling back on the sector, correcting the hype-driven surge that has driven the rally for nearly the entire year.

Second, although investors are bullish enough about Rigetti's future to send its stock surging, they may be less enthusiastic about its current performance.

Too much of a good thing

A market correction in the quantum computing space was almost inevitable, given how aggressively the stocks have been climbing.

In addition to Rigetti's climb, D-Wave Quantum (QBTS) is up 1,292% over the past 12 months, while Quantum Computing (QUBT) has gained 271% and IonQ (IONQ) has risen 64%.

But none of them have escaped the pull back.

D-Wave is now down 40.4% over the past month, Quantum has fallen 37.3% and IonQ has dropped 24.1%

The pull back, however, is not simply a case of correcting an overly frothy market — at least not in the case of Rigetti, which also reported declining revenue and widening losses in its third-quarter earnings last week.

Rigetti's $1.9 million revenue was down from $2.3 million for the same quarter last year, while also missing on analyst expectations of $2.2 million.

Its earnings per share loss of $0.03 was better than the expected $0.05 loss, but its operating loss of $20.5 million was higher than the $17.3 million loss from a year prior.

Benchmark analysts, led by David Williams, said that Rigetti's "long-term investment case remains intact," but lowered its price target to $40 from $50 following the disappointing Q3 results.

Williams noted that "the recent pullback is healthy" for the sector, while adding that the recent volatility "has tempered near-term investor enthusiasm for quantum-related shares."

Before the recent pull back, Rigetti's market cap had risen to over $15 billion in October. It is now at about $8.1 billion following the decline over the past month.