Executive Summary / Key Takeaways

• Quantum Computing Inc. (QUBT) is pursuing a differentiated strategy in the nascent quantum market, focusing on accessible, room-temperature, low-power photonic solutions for real-world problems today, rather than solely on distant fault-tolerant systems.
• A core investment driver is the completion and ramp-up of the Thin Film Lithium Niobate (TFLN) chip foundry in Arizona, expected to generate modest initial revenue in 2025 with accelerated growth anticipated in 2026, addressing growing demand in datacom and telecom markets.
• Recent operational achievements, including new customer orders for quantum machines (Dirac-3, EmuCore, photonic vibrometer) and partnerships with entities like NASA and Sanders TDI, validate the practical application and broadening adoption of QUBT's technology.
• The Company significantly strengthened its balance sheet with over $93 million in net proceeds from stock offerings in Q1 2025, boosting cash reserves to $166.4 million as of March 31, 2025, providing liquidity for near-term operations and investments despite ongoing operating losses.
• Key risks include minimal current revenue, high operating expenses and cash burn, intense competition from various quantum and classical computing players, potential supply chain disruptions, and ongoing legal proceedings, all of which introduce significant uncertainty and volatility.

Setting the Scene: A Photonic Path in the Quantum Realm

Quantum Computing Inc. (QUBT) is carving out a distinct niche within the rapidly evolving quantum technology landscape. Unlike many peers singularly focused on the long-term goal of large-scale, fault-tolerant quantum computers requiring complex cryogenic cooling, QUBT centers its strategy on delivering accessible, affordable, and practical quantum and quantum-enhanced solutions leveraging integrated photonics and non-linear quantum optics. This approach aims to solve real-world problems today.

The Company's journey reflects this strategic pivot. Originally founded in 2001 and undergoing various iterations, a transformative moment arrived with the 2022 merger with QPhoton. This brought patented photonic technology and hardware capabilities into QCi, complementing its software platform and solidifying its focus on light-based quantum systems. This history underscores QUBT's evolution from a diverse entity to a specialized player in the quantum photonics space.

The broader quantum computing market is dynamic and highly competitive, attracting significant investment globally, with estimates suggesting over $50 billion pledged by governments. Industry experts note that the field is reaching an inflection point, with growing recognition of potential applications across medicine, finance, transportation, and cybersecurity. While classical computing remains dominant, quantum computing is expected to drive demand for hybrid solutions, tackling problems currently intractable for traditional systems. QUBT's strategy directly addresses this by developing machines designed for integration into existing infrastructure, operating at room temperature and low power, offering a compelling "size, weight, power, and cost" (SWAP-C) advantage compared to many competing superconducting or ion-trap architectures.

Technological Foundation and the AZ Chips Facility

At the heart of QUBT's differentiation lies its core photonics technology, which manipulates single photons using non-linear quantum optics. This forms the basis for its product portfolio, including the Entropy Quantum Computer (EQC) for optimization problems, the Dirac-3 quantum optimization machine, the EmuCore reservoir computing device for machine learning, a quantum photonic vibrometer for sensing, and quantum cyber authentication tools. The Dirac-3, for instance, is highlighted for its low power consumption, operating at less than 100 watts, a fraction of the power needed by many alternative quantum systems.

A critical strategic initiative is the development of Thin Film Lithium Niobate (TFLN) optical integrated circuits. TFLN is considered an excellent material for integrated photonics due to its optical properties and compatibility with semiconductor fabrication. QUBT's longer-term plan involves migrating its product designs, including the EQC, to TFLN chips. This vision is materializing with the completion of the AZ Chips Facility in Tempe, Arizona. This specialty fab, purpose-built for high-performance TFLN photonic integrated circuits, represents a significant investment, with approximately $7.2 million of property and equipment for the facility placed in service in April 2025. The facility is intended to serve both QUBT's internal needs and external customers, positioning the company as a potential player in the emerging US-based TFLN market, particularly for datacom and telecom applications.

The strategic intent behind the TFLN foundry is to enable scalability, reduce manufacturing costs, and potentially offer performance advantages over discrete components. Specific quantifiable performance targets for TFLN chips were not detailed beyond the general benefits of the material, the investment signifies QUBT's commitment to controlling a key part of its technology stack and addressing anticipated market demand for integrated photonic circuits.

Competitive Landscape and Market Positioning

The quantum computing market is populated by diverse players employing various technologies, including trapped ion (IonQ (IONQ)), quantum annealing (D-Wave Quantum (QBTS)), and gate-based superconducting (Rigetti Computing (RGTI), IBM (IBM), Google (GOOGL)). QUBT's approach, rooted in photonics and focused on practical, accessible solutions for near-term problems, positions it somewhat differently.

Compared to competitors like IonQ or Rigetti, who emphasize building universal gate-based quantum computers, QUBT's focus on optimization (EQC/Dirac-3) and specialized sensing/AI applications (Vibrometer, EmuCore) targets specific problem sets where its technology may offer advantages. The SWAP-C benefits (room temperature, low power) are key differentiators against systems requiring cryogenic cooling. Direct, comprehensive financial comparisons across all niche competitors are challenging to ascertain, but publicly available information indicates competitors like IonQ and D-Wave are also generating revenue, albeit with significant operating losses, similar to QUBT. IonQ, for instance, reported higher revenue growth in Q1 2025 (88%) than QUBT's total revenue growth (44%), suggesting a faster current revenue ramp in their specific market segments. D-Wave focuses on annealing speed for optimization, while Rigetti emphasizes scalable gate-based systems.

QUBT's strategy of offering solutions that integrate into existing infrastructure and its development of the TFLN foundry for broader photonic applications (datacom, telecom) alongside quantum uses could provide a wider addressable market than companies focused solely on quantum hardware. Partnerships, such as the ongoing work with NASA and the collaboration with Sanders TDI, demonstrate validation of QUBT's technology in real-world applications, helping to build credibility and potentially capture market share. The secured purchase orders for foundry services, including from a leading Canadian research institute, further validate the demand for its TFLN capabilities. However, the market remains highly competitive, and QUBT faces the challenge of converting these early wins and foundry capacity into significant, scalable revenue against established and well-funded players. Indirect competition from advanced classical computing and AI optimization methods also presents a challenge, potentially limiting the market size for quantum solutions in certain areas.

Financial Performance and Liquidity

Quantum Computing Inc. remains a development-stage company with limited revenue generation. For the three months ended March 31, 2025, total revenue was $39 thousand, an increase of 44% from $27 thousand in the prior-year period, driven by changes in customer service and custom hardware contracts. Cost of revenue increased by 63% to $26 thousand, resulting in a gross profit of $13 thousand, up 18% year-over-year. However, the gross margin decreased to 33% from 41%, attributed to changes in the mix of service revenue contracts. Management noted that gross margin can vary significantly due to the current low revenue base.

Operating expenses saw a substantial increase, totaling $8.3 million in Q1 2025, up 31% from $6.3 million in Q1 2024. This rise was primarily driven by increased research and development expenses (+34% to $3.0 million) due to higher headcount, lab costs, and depreciation for laboratory equipment, as well as higher general and administrative expenses (+27% to $4.6 million) related to employee/advisor costs, stock-based compensation, and legal fees. Selling and marketing expenses also increased significantly (+49% to $0.7 million) due to tradeshows and marketing programs.

The Company reported net income attributable to common stockholders of $17.0 million for Q1 2025, a significant improvement from a net loss of $6.4 million in Q1 2024. However, this net income was primarily driven by a large non-cash gain of $23.6 million from the change in the fair value of the QPhoton warrant liability. This gain resulted mainly from the decline in the Company's stock price between December 31, 2024 ($16.55) and March 31, 2025 ($8.00). Excluding this non-cash gain, the Company would have reported a substantial operating loss, consistent with its development stage.

Liquidity saw a dramatic improvement in Q1 2025. As of March 31, 2025, QUBT held cash and cash equivalents of $166.4 million, a significant increase from $78.9 million at December 31, 2024. This was primarily due to net proceeds of $93.6 million raised from common stock issuances in January 2025. The Company's working capital increased to $163.5 million from $74.6 million over the same period. While net cash used in operating activities was $4.4 million in Q1 2025 (compared to $3.8 million in Q1 2024) and net cash used in investing activities was $1.7 million (compared to $1.6 million), the substantial cash balance provides significant runway. Management believes existing cash, combined with potential future financings or operational cash flow, will be sufficient for at least the next 12 months.

Outlook and Key Risks

Management's outlook centers on the commercialization efforts for both quantum machines and the TFLN foundry. They anticipate "modest initial revenue" from the AZ Chips Facility in 2025 as they ramp production, finalize certifications, and begin customer deliveries (expected in Q2 2025). Revenue growth from the fab is expected to "accelerate in 2026" as they scale operations and onboard more customers. This growth is contingent on successful execution of the manufacturing ramp, customer validation of the chips, and capturing market demand in datacom and telecom.

For the quantum machine business, the focus is on expanding the customer base and driving adoption through ongoing sales and business development efforts, leveraging recent wins and partnerships as validation. The Company expects to continue incurring additional losses and higher operating expenses in the foreseeable future as it invests in R&D and go-to-market initiatives.

Despite the strengthened balance sheet, QUBT faces significant risks. The minimal current revenue base means the Company is highly dependent on its cash reserves and future capital raises, which could lead to further shareholder dilution. The dynamic and competitive nature of the quantum market poses a challenge to gaining significant market share. Supply chain disruptions, particularly for components sourced internationally, could impact manufacturing. The ability to attract and retain qualified personnel is critical for both technological development and commercialization. Furthermore, the Company is currently involved in several legal proceedings, including securities class action and derivative lawsuits, and litigation related to the QPhoton merger, which could result in unfavorable outcomes or significant expenses, diverting management attention. Macroeconomic and geopolitical factors, such as new tariffs, also present potential headwinds.

Conclusion

Quantum Computing Inc. presents a compelling, albeit high-risk, investment narrative centered on its differentiated photonic approach to quantum and quantum-enhanced computing. By focusing on accessible, room-temperature solutions for real-world applications today and establishing a TFLN chip foundry for broader photonic markets, QUBT aims to bypass some of the long-term challenges facing fault-tolerant quantum computing.

The completion of the AZ Chips Facility and recent customer wins signal tangible progress in executing this strategy. The substantial capital raise in Q1 2025 has provided a critical liquidity buffer to fund ongoing operations and strategic investments. However, the Company remains in an early commercialization phase, characterized by minimal revenue, significant operating losses, and reliance on external funding. The competitive landscape is intense, and various legal challenges introduce additional uncertainty. For investors, QUBT represents a speculative opportunity tied to the successful execution of its manufacturing ramp, the ability to scale customer adoption for both its quantum machines and foundry services, and navigating the inherent risks of an emerging, highly competitive market. The path to profitability remains distant, but the recent operational milestones and strengthened balance sheet provide a foundation for the next phase of its growth story.