Aside from artificial intelligence (AI), quantum computing is one of the hottest tech trends right now. Technology companies, large and small, are investing in quantum computers that they believe could solve large issues in climate science, disease research, materials science, and other areas.
By making early moves now, investors are hoping to be on the cutting edge of emerging quantum computing benefits, which will grow into an estimated market size of $2 trillion by 2035, according to McKinsey. But even with all of the technology's potential, many people in the industry think some of the biggest benefits are still years away.
So, how can someone invest in quantum computing early, without taking on the substantial risk of predicting which smaller players will eventually come out ahead? The answer is to choose large, established companies that are making big moves in the field. Here are two of the best right now.
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1. Microsoft
Microsoft (MSFT -1.75%) took a huge step toward quantum computing earlier this year when the company debuted its Majorana 1 processor. Microsoft says Majorana is a topoconductor (topological superconductor) quantum computing processor that uses "an entirely new state of matter" that's not a solid, liquid, or gas.
The key benefit of Majorana 1, the company says, is that it can create stable and rapid qubits -- the processing units of measurement for quantum computers -- that work more efficiently than some competing systems. Microsoft says its topoconductor will eventually help the company reach 1 million qubits on a single chip and reduce the timeline for solving real-world problems with such computers.
The processor puts the company on the cutting edge of quantum computing, but it also has a more practical application in this industry already. Microsoft's Azure cloud computing service offers developers and researchers access to quantum computing systems developed by Rigetti Computing, IonQ, and others.
With 21% of the cloud computing market share -- second only to Amazon -- Microsoft is already in a strong position to continuing offering expanding quantum services to its cloud customers for years to come.
2. Alphabet
Like Microsoft, Alphabet (GOOG -1.51%) (GOOGL -1.44%) is betting that developing its own quantum computing processor is the best way to access this market. The company's Willow chip, which debuted last year, drastically reduces the number of errors that most quantum computers have. The company says Willow can "reduce errors exponentially" compared to other systems, allowing for far more accurate processing.
If you're noticing some overlapping opportunities between Microsoft and Alphabet, you're right. Both have their own processors and both offer services through their cloud computing operations. Alphabet takes the No. 3 spot in cloud computing services, with about 12% of the market, giving it a significant opportunity in offering quantum-computing-as-a-service.
I think one advantage Alphabet may have over the long term is that the company is already knee-deep in other advanced research systems -- including Google DeepMind -- that eventually could be combined with its quantum computing research. That may not be super advantageous at the moment, but it could give Alphabet an edge over rivals in the coming years as it combines its current DeepMind AI research with its quantum hardware.
Both Alphabet and Microsoft can play the long game
Aside from their quantum computing processor development, both of these companies look like good long-term bets in the industry because they have plenty of capital to invest. Microsoft has $79.6 billion in cash and nearly $55 billion in free cash flow right now, and Alphabet has $95 billion and $50 billion, respectively.
If you're trying to decide between the two, you might want to consider their current valuations. Microsoft has a price-to-earnings ratio (P/E) of about 39 right now, while Alphabet's is just 21. Those are in comparison to the broader tech industry's average P/E of about 36.
While some small quantum computing stocks may be flying high right now, Microsoft and Alphabet have the resources to play the long game. And the added benefit for investors is that both are leading AI stocks as well, which means you'll likely benefit from owning their shares as AI grows and quantum computing continues to take shape.
