Quantum computing involves using the power of quantum mechanics to increase computing power. The faster processing power of quantum computing can bring benefits across numerous industries. For example, some of the possible applications include the development of battery technology for electric vehicles, loan portfolio optimization, and acceleration of the research and development of new pharmaceuticals.
The study of quantum computing had primarily taken place at the research and development level. However, the advent of cloud computing has made the power of quantum more accessible, fostering an unstoppable trend in the technology industry.
Technology companies of all sizes have taken an interest, but companies such as Alphabet (GOOG -1.10%) (GOOGL -1.23%), IonQ (IONQ -3.80%), and International Business Machines (IBM 0.06%) may be among the best positioned to reward investors through this groundbreaking technology. Here's a closer look at why that's the case.
1. Alphabet
The research and development orientation of quantum computing plays into the hands of Alphabet. The company has traditionally invested heavily in tech innovation, and with $116 billion in liquidity to back up this research, it has developed Google Quantum AI.
Google's Quantum AI centers around its Quantum AI campus in Santa Barbara, California. That facility houses a data center, fab, workspace, and research lab to advance its quantum capabilities. And thanks to Google Cloud, more users could directly access these quantum capabilities.
Moreover, of the company's multiple enterprises, Google Cloud is the only business Alphabet separates out in its results. Hence, it may be the only means investors have to gauge the monetization of Alphabet's quantum capabilities.
However, Alphabet stock should hold investors in good stead. Despite tech giant's recent struggles, its revenue for the first nine months of 2022 came in at $207 billion. That is a 13% increase compared to the same period in 2021.
Furthermore, although its earnings fell over the same timeframe to $46 billion, most of that decline came from investment losses. Finally, one can buy this income stream for just 18 times earnings, a valuation that helps Alphabet stand out above its mega-tech peers.
2. IonQ
IonQ is lesser known than its larger quantum peers. At a market cap of about $770 million, it stands as an early stage quantum computing company.
Nonetheless, IonQ is one of the few pure-play quantum companies trading on the market, and it draws investors by selling three quantum computers. It released IonQ Harmony in 2020, making it the first quantum computer accessible through all major cloud services. It followed up with the more advanced IonQ Aria in 2022, and the same year it also released a software-configurable quantum computer called IonQ Forte.
Still, the financials show it remains in a start-up mode. It generated $7.3 million in revenue in the first nine months of 2022, growing more than 16-fold compared with the same period in 2021.
Still, IonQ doubled its operating loss despite that growth. Consequently, the stock has lost nearly 85% of its value since peaking in late 2021.
Nonetheless, it now sells for 1.3 times its book value, which might make more speculative investors more tolerant of its losses. Given its rapid growth and pure-play nature, it holds considerable potential for outsized gains.
3. IBM
IBM has redefined itself as a cloud stock in recent years. But it has also stood out for years as a supercomputing company. Through IBM Quantum, IBM has created an initiative to build what it calls "universal quantum computers" for commercial and scientific applications.
IBM was the first company to bring quantum computing to the cloud in 2016. In 2018, it followed that up with Quantum System One, the first such integrated quantum computer system. At its IBM Quantum Summit in 2022, it announced Osprey, the largest quantum processor available. Osprey will support Quantum System Two, which IBM will launch later this year.
IBM does not directly represent quantum in its financials, but its growth has improved with the 2019 purchase of Red Hat and the spinoff of its managed infrastructure business into Kyndryl. Revenue of $44 billion for the first nine months of 2022 increased 8% year over year.
Another factor is its dividend. That payout, which has increased for 27 consecutive years, pays $6.60 per share annually and yields 4.8%. Such attributes have helped the stock price rise over the last year after a decade of declines. And as long as IBM moves forward as a cloud and quantum computing stock, that trend will likely continue.
