The quantum computing race is starting to heat up, and many investors are growing increasingly bullish on the potential of the technology. However, there are numerous competitors in this industry, and at this relatively early stage, it can be difficult to figure out which ones will be the best investments.
Naturally, some investors are particularly tempted by the quantum computing pure plays -- relatively small operations that don't have any other business lines to support themselves through their R&D and build-out stages. These companies are all-or-nothing investments: If they don't medal in the quantum computing race, investments in them will likely go to $0. On the flip side, if they succeed, their upsides are immense, so early investors could conceivably make a ton of money.
Two of the most popular quantum computing pure plays with retail investors today are D-Wave Quantum (QBTS 5.61%) and IonQ (IONQ 2.79%). But is there a better pick between the two right now?
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Different approaches to quantum computing
The fundamental feature of quantum computing that separates it from the technologies that have come before is that it encodes and manipulates data in the form of qubits. Those qubits can have values of 1 or 0 like the binary bits in classic computers, but also can have values that are complex probability amplitudes.
So far, there are five primary approaches to creating qubits: superconducting, trapped ion, photonic, quantum dot, and neutral atom. There are benefits and drawbacks to each approach, and IonQ and D-Wave are taking different paths.
IonQ utilizes the trapped ion approach, which involves trapping individual positively charged atoms in electromagnetic fields to manipulate them. A primary advantage of this technique is that it has so far been able to deliver relatively high accuracy, which is a key issue in quantum computing. Currently, IonQ's devices hold the world record for the most accurate quantum computing calculations. Additionally, trapped ion systems can operate at room temperature, which gives them a significant cost advantage over approaches (such as superconducting) that demand ultra-cold environments for their qubits.
NYSE: IONQ
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D-Wave utilizes superconducting qubits, but more specifically, it is taking an unusual approach to that technology called quantum annealing, which is used to find the lowest energy states of qubits, providing the optimal answer. This makes it ideal for solving optimization problems, but may limit its usefulness when it comes to performing other types of complex calculations.
Both companies are devoted to their respective quantum computing approaches and will follow them to the end. While there may be merit to both approaches, only time will tell if one of them results in a dead end.
Add more names to your quantum computing stock basket
Given that it's still too soon to tell which of the numerous approaches to this tech will prove to be best, investors interested in gaining exposure to the quantum computing space would likely be better off buying both of these stocks. In fact, I would suggest that adding a third company would also be a wise move.
The superconducting qubit approach (without the annealing aspect) is by far the most popular in the industry. Nearly every big tech competitor that's developing a quantum computer -- among them, Microsoft, IBM, and Alphabet -- is taking that path. So are small pure plays such as Rigetti Computing. You could add a stake in any one of them.
By taking a more diversified approach to quantum computing investing, investors increase their chances of having exposure to the space's winners -- and there may be multiple winners.
The most common target most companies point to when predicting when quantum computing will become commercially relevant is 2030, although both D-Wave and IonQ have computing units available for purchase today.
NYSE: QBTS
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Owning shares of several companies in this industry will spread out your risk. However, because nobody knows how successful or widespread quantum computing will become, don't load up too heavily on pure-play stocks -- they could all go bust. It's always a good idea to manage your position sizing for risk, so I'd suggest putting no more than 1% of your portfolio into any single quantum computing pure play. D-Wave Quantum and IonQ could be winning investments, but there's no way to know right now.
