There are few stocks outside the drug sector I could call purely speculative. QuantumScape (NYSE:QS) stock is one of them.
QuantumScape develops batteries for electric vehicles. The company has been working for over a decade on solid lithium-ion batteries that won’t create dendrites. Those are spiky formations that can limit performance and create real danger.
The question is whether QuantumScape has solved the problem. Just as with a new drug, where investors don’t receive a final decision until the Food and Drug Administration issues a ruling, QuantumScape’s batteries must be tested and approved by automakers.
For the owners of QS stock, a lot is riding on automakers’ answer. The stock, however, is less risky than it was in December, when its price spiked to $131 per share. This morning, the stock is trading around $26, with a market capitalization of about $10.5 billion. Importantly, the company has no revenue and burned $75 million of cash in the first quarter.
Pumped and Dumped
QuantumScape is not a pump-and dump scheme. But you can’t prove that from its stock chart. Speculation has kept the stock bouncing. Since the start of the year, it’s been bouncing down.
I don’t like making short-term bets on a long-term proposition. The underlying outlook of QuantumScape hasn’t changed, although the speculation surrounding it has.
That includes the hype promoted by Kensington Capital, which took QuantumScape public amid great fanfare in November. It also includes short-seller Scorpion Capital, which has called Quantumscape a scam.
Quantumscape requires regular injections of capital to keep its experiments going. That means that it has to carry out secondary offerings of its stock that dilute existing shareholders. What got Scorpion upset was the hype around the SPAC and a secondary offering, which gave Quantumscape’s partner, Volkswagen, (OTCMKTS:VWAGY) a fat profit.
My own view is that retail investors should not buy the shares of companies like QuantumScape. They are too risky.
You might be convinced by a Reddit discussion that QS stock is a winner. You might be convinced by another Reddit discussion that you should short it. About 17% of the company’s float was held by short sellers as of June 17.
Either way, you’re going to a racetrack and betting on a long shot. Unless you’re a materials scientist, you have no idea what might happen. Even scientists don’t know. That’s why QuantumScape is carrying out experiments.
Many Opinions
Anyone can have an opinion on QuantumsScape. That’s what betting on horse races is all about.
George Soros likes QuantumScape and George Soros has lots of money. He can also afford to lose some of it. Another InvestorPlace columnist, Muslim Farooque, likes QuantumScape and thinks it will make massive strides. He might be right.
On the other hand, Wolfe Research says QuantumScape is only worth $25 per share, because its latest quarterly loss was higher than expected. There are also other battery plays coming to market, like Solid Power. It has its own SPAC, Decarbonization Plus Acquisition III (NASDAQ:DCRC). Maybe Solid Power has the answer.
The point is that no one knows whether QuantumScape’s batteries will work. We’re all guessing. Even QuantumScape CEO Jagdeep Singh is just guessing, although his guess may be better than mine.
The Bottom Line
There’s investing. and there’s speculation. Then there’s betting.
QuantumScape is a bet. In that way, it’s no different from Bitcoin (CCC:BTC-USD).
QuantumScape is a venture play. These are still relatively early days for it. Maybe next week, it’ll announce that its solution has been proven to work. Maybe it never will make such an announcement. There’s no reliable way to know.
If you have money to burn, like Bill Gates, an early QuantumScape investor, you can burn some on QS stock. You can burn it on ten highly speculative stocks. You can pretend you’re a venture capitalist. You can hope that at least one of those stock will be a big winner.
I prefer investing.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
