Theoretical physicist Richard Feynman once said, "I think I can safely say that nobody understands quantum mechanics." Feynman, by the way, shared the 1965 Nobel Prize in physics for his work in quantum electrodynamics. If he said no one understood quantum mechanics, then no one understood quantum mechanics.
I bring this up for two reasons. First, quantum computing -- one of the hottest technologies around right now -- is based on quantum mechanics. Second, Warren Buffett has been credited with saying, "Never invest in a business you cannot understand."
You'd think that Buffett wouldn't have any position in quantum computing stocks. However, that's not the case. Instead, the legendary investor owns the following three quantum computing stocks -- even though they don't show up in any of Berkshire Hathaway's (BRK.A 0.30%) (BRK.B 0.18%) regulatory filings.
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1. Alphabet
You won't find Google parent Alphabet (GOOG 0.85%) (GOOGL 0.79%)listed among Berkshire Hathaway's holdings, though. The "Oracle of Omaha" has a stake in Alphabet, though, via New England Asset Management (NEAM). In 1998, Berkshire acquired General Re, which had acquired NEAM three years earlier. Any stock in NEAM's portfolio is, by extension, a Buffett stock.
Alphabet has made multiple advances in quantum computing. The company's Google Quantum AI unit announced in 2019 that it had achieved quantum supremacy, which means a quantum computer performed a calculation that would take the fastest classical supercomputer a ridiculously long amount of time to handle. In 2023, Google Quantum AI took a giant step forward in quantum error correction.
The company still has four more milestones to check off on its quantum computing roadmap. Google Quantum AI director of hardware Julian Kelly told CNBC earlier this year, "We think we're about five years out from a real breakout, kind of practical application that you can only solve on a quantum computer."
2. IBM
Several years ago, Buffett bought shares of IBM (IBM 0.10%) for Berkshire Hathaway's portfolio. Although he later exited the position, he still has a stake in the technology pioneer thanks to NEAM. The Berkshire subsidiary owns 20,285 shares of IBM.
Like Google Quantum AI, IBM has a well-defined quantum computing roadmap. The company has been working on quantum computing since 2016. However, IBM began following its roadmap in 2020.
Big Blue doesn't lack confidence in its capabilities. IBM stated in a blog post that it's "the only quantum computing organization in the world that will be capable of running quantum programs at the scale of hundreds of logical qubits and millions of quantum gates by the end of the decade." The company believes that it "has the most viable path to realize fault-tolerant quantum computing."
3. Microsoft
Although Buffett has been friends with Microsoft (MSFT -0.01%) co-founder Bill Gates for years, he never added the software stock to Berkshire's portfolio. NEAM, on the other hand, continues to have a stake in Microsoft.
Microsoft argues that its quantum computing unit is "leading the industry with advanced technology that accelerates scientific discovery." Earlier this year, the company introduced its Majorana 1 quantum chip. This chip is based on an architecture that Microsoft expects will lead to quantum computers that can solve "meaningful, industrial-scale problems in years, not decades."
Should you own these quantum computing stocks, too?
While Buffett probably doesn't understand quantum computing and wouldn't choose to invest in quantum computing stocks, he nonetheless owns positions in Alphabet, IBM, and Microsoft thanks to NEAM. Should you own these quantum computing stocks, too? I think all three are pretty good picks, but not primarily because of their quantum computing efforts.
Alphabet admittedly faces some challenges, especially with two antitrust decisions going against it over the last year. However, artificial intelligence (AI) is a game-changer for the company. Google Cloud is growing by leaps and bounds as customers build and deploy AI models in the cloud. Google Search is evolving with the integration of generative AI. Alphabet's Waymo unit could be in the early stages of conquering a massive robotaxi market.
IBM isn't the 800-pound gorilla of technology it once was. However, the company still has tremendous opportunities with its AI products. IBM has also increased its dividend for 30 consecutive years, something that should be appealing to income investors.
Microsoft also stands to benefit greatly from AI. It's the second largest cloud service provider. The company has integrated OpenAI's GPT-4 technology throughout its product suite. Agentic AI could be an especially big growth driver for Microsoft.
What about quantum computing? I think it's certainly an important wild card for each of these three companies -- even if you don't understand the technology.
