By Haddon Libby
Since COVID, there has been a marked increase in the gamification of stock market investing. This ‘Meme stock culture’ focuses on a small group of stocks that become loved in community investment forums on Reddit. This leads to large groups of small investors working together to move the price of a stock to valuations untethered to the company’s underlying economics. AMC Theatres and GameStop were early beneficiaries of groups like r/wallstreetbets.
At present, Palantir and Rigetti Computing are major beneficiaries of retail investor support with minimal professional investment manager support. (This is not investment advice. If you want investment advice, see a licensed professional like me.)
Palantir is a stock loved by retail investors and shunned by many professional investors. Professionals dislike the investment due largely to its current stock price. Retail investors are attracted by the company’s strong growth potential and its charismatic leader, Alex Karp. The stock has also become a darling in online Reddit communities.
Palantir is a Denver-based software company that runs central operating systems for government agencies and various industries and utilizes AI to enhance performance. With $2.2 billion in annual sales and $210 million in profits, the company has a market value of $250 billion. Stated differently, the stock price implies a value equal to more than 500 years of profits or more than 100 times sales. The ultra-premium price is based largely on its annual revenue growth rate of 25%. Independent rating service Morningstar recently increased its target price to 180 years of profits.
Rigetti Computing is another retail stock darling. Way back on Halloween, the stock was trading at $1.50/share, well below its 2021 IPO price of $10/share. Currently, the stock trades at $12.50/share. This Berkeley-based company specializes in quantum computing. Quantum computing uses the principles of quantum mechanics to perform computations in ways traditional computers cannot. Where a traditional computer thinks of a unit of information as a 0 or 1, a quantum computer can be 0 and 1 simultaneously making it dramatically faster than traditional computers.
Righetti offers quantum computing via its cloud-based systems. Primary competitors are Google, IBM, Microsoft, Amazon or Honeywell’s Quantinuum. In this David versus Goliath battle, Righetti had revenues of $2.4 million during its most recent quarter with a $15 million loss. Investors have a $3.2 billion valuation on this stock.
Sales were down versus the same quarter in 2023 yet the projections are for 55% growth in 2025. I’m estimating that this means Righetti will have a little less than $4 million in revenues and a loss of $12 million. Since its inception four years ago, RIghetti has chewed through more than $400 million in capital from investors. While the opportunity in quantum computing is an exciting one, can Righetti succeed against competitors spending as much as $100 billion annually on computer advancements? Investors must be hoping that Righetti is to quantum computing what DeepSeek is to Generative AI.
The opposite of a meme stock is a boring old business like Microsoft with a $3 trillion valuation. This stock has gone nowhere over the last year as valuations are thought to be on the high side after increasing by 136% since 2020. The company does many similar things to Palantir and Righett. Microsoft had $245 billion in sales in 2024 representing a 15% growth rate. Profits were $88 billion meaning that Microsoft trades at a premium valuation equal to 35 years of profits.
You be the judge on whether a stock is valued correctly or not. When investing, there is nothing wrong with having a pool of money that you gamble with. This is a great way to learn about investing while having some fun. The important thing to remember is that you should keep most of your investments in stocks where valuations are more closely tethered to the underlying economics.
Haddon Libby is the Founder and Chief Investment Officer of Winslow Drake Investment Management, a Fiduciary RIA. For more information on our services, please visit www.WinslowDrake.com.
