Quantum computers hold a lot of promise. They could advance medicine and materials science discoveries, improve weather forecasting models, and help create more advanced artificial intelligence. These vast possibilities have some investors and tech companies giddy, leading to some quantum computing stocks soaring over the past year.
But which ones have true staying power? I like the ones that have already proved competent in other large tech trends and have the profits and long-term plans to succeed in quantum computing. Here's why Alphabet (GOOG +0.41%) (GOOGL +0.66%) and Microsoft (MSFT 1.33%) are two quantum computing stocks to buy now.
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Alphabet's Willow chip sits at the cutting edge of quantum computing
Alphabet recently marked a significant quantum computing milestone when it released its Willow processor. The quantum computing chip achieved benchmark computation in just a few minutes and "exponentially" reduced errors compared to other quantum computers (errors are a problem for quantum computing).
Alphabet CEO Sundar Pichai said on the company's latest earnings call that, "Willow is an important step in our journey to build a useful quantum computer with practical applications. This technology holds so much promise, which is why there was real excitement around this breakthrough."
NASDAQ: GOOGL
Key Data Points
Practical applications for quantum computing could be years away, which could give Alphabet an advantage over smaller quantum computing companies. The company generated $2.15 per share of non-GAAP earnings in the fourth quarter (which ended Dec. 31) and had $24.8 billion in free cash flow. This means Alphabet generates plenty of cash without quantum computing and can invest some of it in long-term projects that don't yet have any financial gain. Smaller quantum computing rivals can't claim the same.
Investors can also get Alphabet's stock for a relatively attractive price right now. Alphabet's shares have a forward price-to-earnings multiple of 19.4, lower than the S&P 500 index's forward P/E of 20.4. That means you can buy shares of a leading quantum computing company with plenty of cash to make further technological investments at a reasonable price. That's all the more reason to buy Alphabet, as well-priced tech stocks are hard to find these days.
Microsoft's new state of quantum computing
Microsoft has gained a lot of attention lately, as the company was one of the first to invest significantly in ChatGPT creator OpenAI. That's given the tech giant access to one of the most advanced chatbots on the market, and it has swiftly integrated the tech into many of its products and services.
But Microsoft created even more waves in the tech space recently when it unveiled a new quantum computing processor with an entirely new state of matter. Microsoft says its Majorana 1 processor isn't a solid, liquid, or gas but rather a "topological state."
Microsoft says this new topoconductor can be controlled digitally while creating stable and fast qubits (the processing measurement for quantum computers), which is a big step toward a quantum computer with 1 million qubits. Microsoft's management says this amount of qubits will be necessary to solve complex problems with quantum computers.
NASDAQ: MSFT
Key Data Points
"All the world's current computers operating together can't do what a one-million-qubit quantum computer will be able to do," Microsoft said in a blog post. The company also said its topological qubits are more stable than qubits from other systems, making them more practical and needing less of a controlled environment than other quantum computers.
What does all of this mean for quantum computing? Microsoft says it puts the practical applications for quantum computing "within years not decades."
Like Alphabet, Microsoft can afford to wait. The company generated $3.23 in earnings per share in its second quarter (which ended Dec. 31) and had $6.5 billion in free cash flow.
Microsoft's shares have a forward P/E multiple of 30.1, so they aren't as cheap as Alphabet's. But with Microsoft's significant leap forward in quantum computing, its stock looks reasonably priced, especially considering its strong financial position and its leadership in other tech trends like artificial intelligence.
