Quantum Newsletter #01 | January 2021

Analyst Q&A on Amazon's Potential Acquisition of Rigetti

Dear friends,

Happy new year! We’ll start the 2021 newsletter series with a Q&A response by our research analyst (RA) regarding our post ‘Amazon's NISQY Business: Is Rigetti in the Shopping Cart?’.

Question #1: I am interested in how you came up with the $ amount valuation for Rigetti in the above referenced article. What was your methodology? I am working on research on how investors/acquirers determine the value of start-ups. This is academic research, not for investors.

RA: The pricing range was generated by our proprietary M&A analyser algorithm, hence we cannot share the mechanics of this process with third-parties. However, in some instances, where we have a formal partnership agreement with academic researchers via their institutions, we may be in a position to disclose more about our M&A Analyser for the purposes of research. Nevertheless, we can state that the M&A analyser algorithm does take into account standard variables, including; recent private valuations from other companies in the same space, competition, etc.

Question #2: If you're Amazon, why not acquire IonQ?

RA: Our reasoning can be summarised as follows:

  1. Riggetti has more synergy with Amazon Web Services (AWS) in respect to the software development community. Furthermore, Rigetti does have a decent early adopter community using its open source software toolkits, such as pyQuil, which AWS can tap into. Likewise, the massive global distribution power of AWS can empower Rigetti to expand and evangelise its open source quantum toolkits. Apart from a handful of large names that have signed up (according to their PR), IonQ doesn’t at present provide the mass community value that Amazon could benefit from.

  2. From a technical point of view, IonQ is a riskier venture to pursue for Amazon as compared to Riggeti. This is due to the fact that the former’s quantum computing hardware architecture (Trapped Ions) is in a far less advanced developmental stage than the superconducting hardware architecture used by Rigetti. It is worth mentioning that Amazon’s arch rivals such as IBM and Google are already pursuing this alternative path. However, IonQ has recently released a stream of PR announcements stating a number of (unverified) claims about its technology that if true (and impactful according to many experts) could potentially make it more appealing to Amazon.

    Question #3: You mention IBM Qiskit has developed a strong community following. If the first users of any machine are likely to large corporate customers, how do you value that? Would all the users not flock to whoever creates the first/best useful machine?

    RA: Firstly, many of the Qiskit followers, according to our data, are young graduates and hence are in the early stages of their career. The thinking is that these graduates will evangelise Qiskit as they enter the corporate world as they are already using it for their side projects. This may potentially create an invisible mass network effect for IBM Quantum platform, similar to what happened to AWS in the early days of the public cloud computing era, where mostly young people & researchers were playing with the cloud, whereas in the same time period large corporations were slow on the uptake. Today, almost all of the fortune 500 companies have some sort of cloud workload using vendors such as; AWS, Microsoft Azure and Google Cloud.

    Secondly, building the first/best useful quantum hardware will not necessarily translate into a market dominance position as there are simply not many customers who can afford to have the in-house technical ability to manage the first generation of useful quantum computers. Thus, accessibility via the cloud and APIs will play a very important role in deciding who the leading quantum computing vendors will be. Consequently, this will enable them to reach out to more customers as opposed to just selling the hardware. IBM, via Qiskit and the IBM Quantum Cloud experience has built a baseline that we predict will enable them to move faster than what we currently observe with others.

    Thirdly, by offering free access to its quantum hardware via the cloud, IBM is essentially helping itself by having thousands of people testing and filling bug reports for free! Plus, IBM is able to see more real use cases and optimise for these due to large numbers of users.

    Question #4: Amazon AWS is partnering with three quantum computing start-ups, Rigetti, D-Wave, and IonQ. If they are considering acquiring Rigetti, why would they be partnering with the three? Some kind of competitive due diligence?

    RA: A simple answer is that, even if Amazon acquires Rigetti, the likes of D-Wave and IonQ will most likely still be on the AWS bracket service. The reason is that both companies need the distribution of AWS to make their quantum hardware accessible to as many customers as possible. Also, it’s important to note that D-Wave (quantum annealing tech) and IonQ (Trapped Ions) are using different quantum technologies than Rigetti, so there is no direct competition in terms of hardware architecture. It may turn out that customers will want to use either depending on what problem they want to solve or a combination of the three.

    Disclaimer: Any opinions, newsletters, research, analyses, prices, projections or other information offered by ZAIKU CAPITAL is provided as general market commentary, and does not constitute investment advice. ZAIKU CAPITAL will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.  

    Research Credits: This post was powered by our amazing quant market intelligence platform team Kähler Insights.