SuperQ Quantum Computing Inc. (QBTQ.CN) (QBTQF) and Aegis Critical Energy Defence Corp. (QESS.CN) (QESSF) recently announced an MOU to "integrate SuperQ's proprietary quantum optimization technologies with Aegis's high-performance energy infrastructure, creating a next-generation framework for efficient and resilient energy management". It should come as no surprise to our readers that we are going to cover QBTQ next. Since we first mentioned QESS f/k/a Energy Plug Technologies Corp. (PLUG.CN) (PLGGF) about a year ago, the stock tripled in price and hit our previous $0.50 target so that we had to upgrade it to $1.50. We will be providing an update to QESS in future reports but today's focus will be on QBTQ. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1041 followers on here as well as 125 followers on our Canadian blog. You can also follow us on X @StockTradePicks which has over 5,000 followers.
Our readers are not stupid and we are not going to treat them as such. Clearly our successful coverage on QESS has led to being recruited to provide coverage on QBTQ as well. But we don't take deals that impact our reputation unless we see clear upside potential. We think QBTQ is in an even more advantageous situation than QESS was a year ago and it is reflected in the type of compensation we accepted for our research. With QESS we participated in a private placement at the time in addition to buying on the open market. For QBTQ, there is no private placement. The only way to buy shares right now is on the open market and we accepted stock options along with putting our personal money at stake. As the disclosure of compensation is out of the way, we will explain why we are enthusiastic about this stock and think it offers a unique opportunity for retail investors to get in at the ground floor. There are four reasons, but really two sets of inter-related reasons: technology and time to market and valuation and float. QBTQ is at the forefront to move the industry from quantum potential to quantum utility, yet is trading at a sub-$50 million market cap.
Naysayers who don't pay a lot of attention may look at the QESS deal with QBTQ and wonder: "this company just did a deal with QNC, now this one. Are they just lining up empty deals to pump stock?"
No, as a next generation infrastructure play, QESS actually needs to explore these integrations of technology. Any deal with Quantum eMotion Corp. (QNCCF) (QNC.CN) is related to quantum security. Making sure that the system is safe from hacking and related terrorist threats. The MOU between QESS and QBTQ is related to QBTQ's quantum computing technology. Looking at ways to use data and predictive modelling to design energy systems in the most efficient way.
While companies like QESS and QNC have bright futures, keep in mind most of their business is focused on B2B. Seeking and developing partnerships are inherent to their business models. That is not the case for QBTQ. Partnerships are obviously nice to have but the company doesn't need them to generate revenue.
QBTQ recently launched ChatQLM at the Consumer Electronics Show. The app is based off of the company's Super™ Platform, which is like the ChatGPT of quantum and supercomputing. The goal is to let regular people access quantum computing tools in a normal conversational way. As opposed to existing tools which are meant primarily for physicists and researchers and have user interfaces requiring a high amount of expertise in those fields. We think of it like the "WWW" moment for quantum. The internet in the 1980's was primarily college networks communicating with each other to share scientific data. It was the creation of the WorldWideWeb with a more user-friendly interface that spurred the wild growth of the internet. ChatQLM is of course a long way off from being a mainstream name like WWW, but that is what gives investors the opportunity to buy into it at a sub-$50 million market cap in the first place. We are betting on the name becoming mainstream. But even if it doesn't, entry now is at a low enough bar where even mild success can be materially profitable.
The company has released a corporate presentation. We will be referencing this presentation as part of our bullish thesis and recommend that readers review this document thoroughly.
After discussions with CEO Dr. Muhammad Khan, he gave a clear outline and examples of when ChatQLM will be superior to ChatGPT. ChatGPT is good for content generation and qualitative work. We think people understand this as they have encountered enough stories or conversations on the internet that look like they were generated by AI. Where ChatGPT falls short is its inability to provide analytical answers as it does not have the access to quantum tools nor the computing ability to use them. For instance, if someone was to ask "How to build a stock portfolio to maximize returns?", it gives out a generic answer about knowing your time horizon, diversification, etc. The goal of ChatQLM would be to provide upside and risk assessment based off of quantum computing power that could help in determining actionable buy or sell decisions for the user. Another area where ChatQLM would come in handy would be for scheduling. People who work in large organizations and run meetings with multiple attendees know that trying to schedule meetings with no conflicts can be a time consuming and frustrating task. Scheduling blue collar workers in an efficient, productive and engaging way is a notch of difficulty higher. This is where ChatQLM can be used to simplify the process just like ChatGPT or Microsoft Copilot is being used within organizations to write emails.
The launch of ChatQLM along with the existing Super™ Platform comes with a near-term revenue-generating business model. On the individual consumer version of the app, there will be a freemium version to test out how it works. If people want it to solve basic problems, there will be a $20 per month tier. An $80 per month tier gains access to some quantum computing capabilities. A $200 per month tier provides users with full access to ChatQLM along with a limited amount of computing power. ChatGPT has approximately 35 million subscribers paying at similar price points, so there is evidence that this business model can be successful.
On the enterprise side, organizations can buy a license for $25,000. Unlike a lot of other SAAS models which require a license per employee, the one license is good for everyone within the organization. QBTQ expects to generate the bulk of its revenue from selling compute. The more people that use it within an organization, the more computing power will be needed. QBTQ's model is similar to cell phone plans from a few years ago. People would pay a monthly plan for calls and text, but the real money being made was by selling data usage. As QBTQ is an early stage provider of quantum computing power to the masses, it has the pricing flexibility to really rake it in from selling compute. Dr. Khan estimates $75,000 in annual compute revenue per every $25,000 license, and the margins projected on both will be around 50%.
There is also a research subscription tier for $12,000 meant for non-commercial use. QBTQ also runs "Super Hubs" for training, upskilling and accelerator programs for corporates, governments, students, researchers and entrepreneurs. Finally, the company offers a quantum computing consulting service where companies can hire QBTQ to solve their problems for them at $350 per hour, with an estimated 40 to 80 hours required per problem.
Regarding the company's intellectual property, the software that enables regular people to access quantum computing in a conversational way is proprietary to QBTQ. It's hardware agnostic and the company uses D-Wave Quantum (QBTS) and IonQ (IONQ) to provide the quantum computing power. Dr. Khan stated that the eventual goal is to bring hardware in-house through M&A deals with the right Canadian built quantum computing startups. The technology is innovative, business model is clear and the timing is just right for speculative investors to dive in as the company has just started commercialization of Super™ and ChatQLM.
The other half of the equation that makes QBTQ a compelling investment is the valuation and float. It has just under 30 million shares outstanding, but 10 million of those are owned by Staque Computing FZ-LLC, Dr. Khan's holding company. In addition to that, Dr. Khan and other insiders have been purchasing shares on the open market. This leaves less than 20 million shares in the float. Should the launch of ChatQLM garner media attention, the thin float will act as a launching pad as a lot of new buyers will find the supply of shares to be limited.
At $1.20, QBTQ sits at around a $36 million CAD valuation. According to the corporate presentation, the company has 7.7 million warrants outstanding and 1.7 million stock options, so the fully diluted share count is 39.3 million. For retail investors, this is an opportunity rarely seen in the public markets. ChatGPT's parent company OpenAI is still private yet has an estimated valuation of $500 billion on $13 billion in annual revenue in 2025, a 38x revenue multiple. Mr. Khan could be seen as a Canadian Sam Altman and investment access to his company - at all - let alone at this kind of valuation despite imminent commercialization is unique.
Dilution risk outside of existing derivatives appears minimal for a company of this size. On the corporate presentation, it claims $3.5 million in cash and that it is already profitable with a track record of securing non-dilutive capital for R&D. The existing warrants and options - most of them being a stone's throw away from being in the money - would bring in over $13 million in cash upon exercise spread over the next four years. Any acquisitions as previously discussed would primarily be through issuance of shares. This would be dilutive but would have much less of an impact on the float as these deals would presumably come with share lock-ups and be with acquisition targets that would want to keep the bulk of their shares as part of a larger organization.
Page 18 of the presentation outlines a five year revenue and net profit forecast. These projections do not include ChatQLM subscription revenues. While one could expect significant and likely the bulk of the revenue to come from ChatQLM, given that the launch is two weeks old, it's a reasonable and responsible move for QBTQ to hold off on any public projections until more data is generated and assessed.
Even without ChatQLM projections, these numbers suggest a significant upside given some very aggressive valuations for larger quantum peers. QBTS trades at a valuation of over $10 billion, over 300x its trailing revenue. IONQ trades at approximately 150x its trailing revenue with an $18 billion market cap. QNC trades at around a $1 billion CAD market cap while also being in the early stages of commercialization and without revenue projections like QBTQ.
Assuming Year 1 is 2026, QBTQ trades at a relatively muted 30x revenue multiple. It trades at a forward revenue multiple of 12x and forward earnings multiple of 40x based on Year 2 projections.
We are comfortable with a $10 price target which implies just under a $400 million fully diluted market cap based on the following:
- This implies a 330x revenue multiple. While extreme out of context, it is not out of line compared to other much larger quantum peers. ChatQLM revenues offer unknown upside that could blow conservative company projections out of the water.
- Forward year revenue multiple comes in at 126x, but with profitability attached, making it an attractive comparable to larger peers even at $10. Presumably at a $10 price and near $400 million market cap, it would attract more mainstream and institutional investors and brokerage houses, who would make a similar kind of argument as we do today.
- At a $400 million market cap, QBTQ is trading at less than half of the valuation of QNC. Even though these companies could be seen as peers, have a mutual partner in QESS and QBTQ appears further ahead in terms of revenue and profits, at least when it comes to its forecast. The only difference appears to be that QBTQ is lesser known as a recent RTO listing. This should not be a mitigating factor going forward given that ChatQLM has the potential to be a consumer-facing product that should garner mainstream coverage.
Factors would invoke an upgrade from the current $10 price target:
- QBTQ reaching $10, presumably on a very successful launch of ChatQLM and associated media coverage.
- Updated financial forecasts that included ChatQLM subscription revenue.
- A conversion of financial projections into financial results in upcoming quarterly reports. Even a slim $200,000 in net profit proves QBTQ as one of the first, if not the first profitable quantum pureplay.
- An accretive acquisition on the hardware side.
Disclosure: We are long QBTQ.CN, We have been compensated to write about QBTQ through stock options, but have also engaged in open market buying.
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