Quantum computing became a hot topic in 2024. After bubbling just below the zeitgeist for several years, a leading technology developer in the field presented a huge leap forward. The news inspired tons of headlines, and stocks in the quantum computing space skyrocketed.
The market effects are mind-boggling. As of Jan. 10, shares of trapped-ion systems builder IonQ (IONQ +2.53%) have more than doubled in three months -- and that makes it a sleepy laggard in this context. Smaller rival D-Wave Quantum (QBTS +2.74%) is up 553% over the same period, while up-and-comers Rigetti Computing (RGTI +2.65%) and Quantum Computing (QUBT +4.13%) soared more than 1,100% higher.
Here's how the quantum computing industry's market spike unfolded, with the S&P 500 (^GSPC 0.11%) index included to give you a sense of scale:
Quantum upstarts: big potential, bigger risks
One or more of these hungry quantum upstarts may indeed become major players in the long run. Early investors could reap massive rewards as their research projects lead to game-changing computing systems and incredible revenue streams.
But I wouldn't bet on any of these market darlings right now. Quantum computing won't make a large impact on any existing industry in the next decade, and these pure-play researchers might not make it that far. Here's a quick look at their most recent earnings reports:
|
Quantum Computing Expert |
Q3 2024 Revenues |
Q3 2024 Net Income (Loss) |
Market Cap |
|---|---|---|---|
|
IonQ |
$12.4 million |
($52.5 million) |
$6.9 billion |
|
Rigetti Computing |
$2.4 million |
($14.8 million) |
$2.2 billion |
|
D-Wave Quantum |
$1.9 million |
($22.7 million) |
$1.6 billion |
|
Quantum Computing |
$0.1 million |
($5.7 million) |
$1.2 billion |
Financial data was collected from earnings reports and market data from Yahoo! Finance on Jan. 10, 2024.
This group is hardly collecting any revenues, and they're saddled with massive research costs. I'd normally talk about valuation ratios here, but they simply aren't meaningful. It's too early to pick long-term winners in this fledgling market, at least among the handful of companies that can't rely on more stable business operations to fund their quantum computing ambitions.
Meet the real quantum contenders
That brings me to the real meat of this review. I see technology veteran IBM (IBM 2.72%) and Google parent Alphabet (GOOG 0.21%) (GOOGL 0.41%) as the real drivers of the quantum computing opportunity.
The unbelievable technology breakthrough that started the recent market rush came from Google. The company unveiled a quantum computing chip that can solve a very specific set of problems much faster than old-school digital systems. Here's how Google's researchers explained the Willow chip's achievement:
"Willow performed a standard benchmark computation in under five minutes that would take one of today's fastest supercomputers 10 septillion (that is, 10,000,000,000,000,000,000,000,000,000,000) years -- a number that vastly exceeds the age of the Universe."
I'd like to point out that the performance boost didn't come from IonQ or Rigetti. Google really is at the bleeding edge of this exciting technology.
NASDAQ: GOOGL
Key Data Points
What Google's Willow chip is doing today
Google's Willow chip didn't break encryption or predict the weather. It delivered a remarkable performance on a benchmark task specifically designed to be "hard for a classical computer but easy for a quantum computer."
The random circuit sampling (RCS) problem was tailored to play to the strengths of quantum systems. Using the Schrödinger-Feynman algorithm, a classical computer can simulate the operation of a quantum computer analyzing a simple problem, but very slowly. The Willow chip skips the simulation and simply delivers the expected results from an actual quantum computer.
So, Google's latest and greatest experimental quantum computing hardware is very good at doing things that simply don't make sense to old-school digital computers. It's an important step forward, paired with efficient error correction functions, but Willow can't do anything truly useful yet. Crypto-cracking machines are decades away, and quantum computers can't even do simple multiplication yet.
The industry's quantum leap is still decades away
Industry insiders are well aware of these limits. Nvidia (NVDA +2.59%) CEO Jensen Huang put the fledgling industry into perspective at a recent investor conference. Quantum computers will be incredibly powerful someday, but when is that tipping point coming?
In terms of the number of qubits, "we're probably somewhere between 5 orders of magnitude or 6 orders of magnitude away," Huang said. "So, if you kind of said 15 years for very useful quantum computers, that would probably be on the early side. If you said 30, it's probably on the late side. If you picked 20, I think a whole bunch of us would believe it."
Pure quantum computing stocks fell hard on that patient statement, but they still look expensive after that partial price correction.
NYSE: IBM
Key Data Points
IBM and Alphabet are the no-brainer quantum stocks to own today
So, I wouldn't hold my breath, expecting unprofitable upstarts to remain relevant and solvent for two decades. Alphabet and IBM, on the other hand, are already old hands with very profitable core businesses, which gives them the luxury of developing tomorrow's most mind-blowing technology as an experimental side gig. Failed research ideas could bankrupt a smaller name, but IBM and Alphabet investors will barely notice them as a rounding error on financial statements.
And let me just highlight their leading roles in this industry again. Rigetti, IonQ, and D-Wave have filed for a total of 396 quantum computing patents in the last 14 years. Google has them all beat with 428 filings over the same period, and IBM is the global leader with 630 patents.
So, I'm more than happy to trust my nest egg with proven industry leaders who are also positioned to benefit from the incoming quantum computing boom someday. Big Blue and Google are two of my favorite long-term investment options anyway, and the quantum theory opportunity only adds to their value.
