Quantum computing is a hot topic in the market, and if it proves to be a viable technology over the next decade, it can really shake up the computing industry. However, pinpointing the winner of the quantum computing race is far from certain. No company has set itself apart from another as the go-to solution for quantum computing, so the field is wide open.
Investing in quantum computing start-ups right now is akin to biotech investing -- either a company will succeed or it will fail. This all-or-nothing investment approach may suit some investors, but I'm not a huge fan of it. Instead, I'd rather pick some of the big tech companies competing in this race and have a backup plan should quantum computing not work out. From that standpoint, I like Alphabet (GOOG -0.53%) (GOOGL -0.54%) and Amazon (AMZN 0.05%). In the start-up realm, I'm a huge fan of IonQ (IONQ -0.83%), although that company is more of a long shot compared to the other two.
I think it's key to take a balanced approach in quantum computing, and taking a position in this trio exposes investors to the right amount of risk.
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Alphabet and Amazon are more conservative investments
Alphabet kicked off the latest quantum computing hype cycle in December 2024 when it announced its Willow chip had completed a computing task in five minutes that would take the most powerful supercomputer 10 septillion years (a 10 with 25 trailing zeros) to perform. Now, this test was rigged in Willow's favor because it tackled a problem that is only solvable using quantum computers, but there are many problems like that in the world, such as logistics networks and weather patterns. There are also massive implications with AI, and quantum computing could be the technology that unlocks AI's maximum potential.
Amazon is also working on its own chip, Ocelot. These two companies are heavily pursuing quantum computing because they have already built significant infrastructure to support cloud computing. Cloud computing involves moving workloads online to a cloud computing server, which clients rent from providers like Amazon Web Services (AWS) or Google Cloud. Having rentable quantum computing hardware is key, as they don't want to be caught in the same position as traditional computing.
The most popular workhorse computing hardware used in cloud computing is the graphics processing unit (GPU), made by Nvidia (NASDAQ: NVDA). GPUs have become popular devices to run workloads on, and Nvidia has captured a massive chunk of the data center computing market share. As a result, AWS and Google Cloud must continue buying expensive hardware from Nvidia. If they can develop their own quantum computing solutions for the next wave of computing innovation, they won't be subject to a supplier's ecosystem, allowing them to make more money.
However, it's possible that these two may fail and lose to a start-up like IonQ.
IonQ could be a massive winner if it wins the race to quantum computing viability
IonQ is a full-stack quantum computing company, meaning it develops the hardware and software that allow quantum computers to run. This is similar to how Nvidia operates with GPUs, and if IonQ's technology proves to perform better than the products Alphabet and Amazon develop in-house, it could be a massive winner.
IonQ has already sold some hardware to AWS and Google Cloud, as it is ahead of both competitors in terms of a go-to-market product. Thanks to its all-to-all connectivity within its system, it has achieved an industry-leading 99.9% two-qubit gate fidelity (a measure of how accurate its results are). IonQ has already sold a few units and is slated to launch several more as demand increases.
Although IonQ may not be the winner in the quantum computing arms race, it is a leader. It will be a monster winner for investors if it wins the quantum computing arms race outright. However, if it does not, the stock will likely become worthless. That's why I like adding companies like Amazon and Alphabet to the mix, as they have a base business to fall back on should their internal quantum computing technologies not work out. Even if they don't, the quantum computing arms race may play out similarly to the AI arms race, where the cloud computing businesses see strong growth as more workloads come online.
