Xanadu Quantum Technologies Ltd., the Toronto-based quantum computing company, is heading into one of the most consequential moments of its short life as a publicly traded firm as a lockup restricting the sale of most of its stock is set to lift on Sept. 22.
The lockup expiration comes six months after Xanadu went public by merging with a Nasdaq-listed special purpose acquisition company. Once it lifts, early shareholders — including angel investors, venture capital firms, pension funds and banks — will be able to sell their shares for the first time.
The stock’s short trading history has already been volatile. Shares quadrupled in value within the company’s first few weeks on the market before crashing, and have continued to decline since. The stock closed at US$7.42 on Friday.
Small Float Blamed for Volatility
Xanadu founder and chief executive Christian Weedbrook told The Globe and Mail he is looking forward to the lockup lifting. He pointed to the company’s small freely tradeable float — just 13 million of its 300 million shares up to now — as the reason behind the stock’s sharp price swings, which he described as making the stock vulnerable to “crazy” moves. The stock moved by 10 per cent or more on 13 of its first 26 trading days.
Weedbrook said increasing the number of tradeable shares should help stabilize the stock and make it easier for large institutional investors to buy in. He said he does not know where the stock will trade after Sept. 22, but described the lockup expiry as important for the company’s long-term prospects.
Analyst and Investor Views
CIBC Capital Markets analyst Todd Coupland, who has set a US$22 price target on Xanadu stock, wrote in a Sept. 1 note that the company is entering a period in which it could hit several “technical de-risking” milestones. Coupland said the stock could see “substantial upside” if Xanadu demonstrates technical progress, while delays in reaching milestones or advancing toward commercialization remain the key downside risks. He added that Xanadu should be judged less on near-term revenue generation and more on whether it converts capital into measurable technical and commercial progress.
Toronto tech entrepreneur Michael Hyatt, an early investor in the company, said he has held his position in Xanadu since the beginning and remains confident in the business. He said his view is that quantum computing will become commercially viable by 2030, and suggested that investors who exited quantum stocks early during past liquidity events may have come to regret it.
OMERS Holdings Highlight the Stakes
The scale of potential gains — and losses — for early backers has been striking. The Ontario Municipal Employees’ Retirement System’s stake in Xanadu was worth US$1.6-billion at its peak in late April, after the pension fund’s venture-capital arm had invested less than US$30-million to build that position. At its peak, the stake was worth twice as much as OMERS’ top public stock holding as of June 30, which was Nvidia Corp.
Even after the subsequent selloff in Xanadu shares, OMERS’ stake was worth US$299-million as of Friday — more than the value of its combined holdings in three of Canada’s major banks as of June 30, and six times the value of its stake in Shopify Inc.
Xanadu Quantum: Key Figures
Industry Still in Early Stages
The quantum computing sector remains in its infancy, and no company, including Xanadu, has yet produced a commercially relevant machine capable of achieving the technology’s full potential, even as many firms in the space carry billion-dollar valuations. Quantum computers are expected to eventually vastly outperform conventional supercomputers, with potential applications in finance, materials science and drug discovery.
Xanadu and two other Canadian companies are awaiting word this fall on whether they will advance to the third and final stage of a U.S. Defense Advanced Research Projects Agency competition, which challenges developers to build a commercial-grade quantum computer by 2033. Companies that succeed could qualify for US$300-million each in American government funding.
The Canadian government has agreed to match DARPA funding received by Canadian participants, and has separately committed US$195-million in repayable funding to Xanadu to help build an advanced manufacturing facility in Toronto. Xanadu, which builds its quantum technology using light, unveiled a chip last year capable of performing quantum error correction — a capability considered essential for achieving reliable performance in practical applications. Continued progress on error correction remains a central challenge for Xanadu and its competitors.
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