As interest rates fall, it becomes harder for investors to produce an acceptable return. Instead of risk-free assets like bonds, they must turn to riskier investments to produce better returns. This increases the potential attractiveness of high-risk stocks, such as those in the quantum computing space.
We've seen this play out in the past few weeks, when many quantum computing stocks have seen their prices soar as news of the Federal Reserve's interest rate plans reverberated through the market. However, that was just one rate cut.
As there is a high likelihood of another cut -- and perhaps a second before 2025 is over -- this bodes well for quantum computing stocks, and they could be one of the best-performing investments to end the year and throughout 2026.
If you're looking to take on a bit more risk, then these three quantum computing start-ups could be genius investments over the long term.
Image source: Getty Images.
Quantum computing is still a few years out from commercial viability
Three pure-play quantum computing stocks that I follow are IonQ (IONQ 2.22%), Rigetti Computing (RGTI 1.48%), and D-Wave Quantum (QBTS 4.25%). All three have one goal in mind: to produce a commercially viable quantum computer.
These three have no backup plan; it's relevancy or bust. And they are going up against some serious competition. Many of the big tech companies with nearly unlimited resources are developing their own quantum technology.
The technology could have room for many winners, or one could run away with the market if it can beat everyone else to the punch. We won't know for some time, since most companies point toward 2030 as the year when it could become commercially viable.
All three of these companies are taking a different approach toward quantum computing, and their chosen path will likely determine if they're successful or not.
NYSE: IONQ
Key Data Points
IonQ uses a trapped-ion approach, which is a different path than most companies have taken. This technology has several advantages, namely that the calculation can be done at room temperature and it has supreme computing accuracy.
This technology holds records in one-qubit (99.999%) and two-qubit (99.97%) gate fidelity. This is a measure of how accurate a quantum computing calculation is after passing through these processing gates. So, for every 100,000 computations through a one-qubit gate, users can expect one error. With computing accuracy being the primary concern surrounding this technology, picking the leader in accuracy seems like a wise investment.
Rigetti Computing uses the more traditional superconducting approach, which requires cooling a particle to near absolute zero to use its quantum mechanics for computing purposes. This is very expensive, but it yields processing speeds much faster than a trapped ion system.
The company has the industry's largest multi-chip quantum computer available, and it has a 99.5% two-qubit gate fidelity. This is far behind IonQ's accuracy, but this multichip version is a commercially viable option that could see demand whenever a client is bold enough to dive into the quantum realm.
NASDAQ: RGTI
Key Data Points
D-Wave Quantum is taking an entirely different approach from IonQ and Rigetti. Instead of building a general-purpose computer, it's focusing on quantum annealing, which can be used for optimization problems. By identifying the solutions with the lowest energy, it can quickly pick the optimal approach. This makes it great for problems like logistics networks and artificial intelligence training, which are two huge uses for the technology.
These three could be great quantum computing investments, but there are a few things investors should consider before buying shares.
The road ahead could be quite bumpy
There's no guarantee that any of these companies will produce a commercially viable product. All three of them could go to $0. As a result, investors need to keep their position sizes relatively small to offset this risk. However, if one of them works out and becomes the leader in this industry, that small investment could result in huge returns.
Another way to minimize this risk is with a quantum computing ETF, which invests in a basket of stocks competing in the quantum sector. However, most of these ETFs are heavily weighted toward the big tech players, so the gains may not be as explosive.
NYSE: QBTS
Key Data Points
Furthermore, even if one of these stocks ends up being the long-term winner, there's likely to be several huge drops along the way as the market rises and falls. If we enter a scenario where the market wants to de-risk itself, these stocks will be among the hardest hit, so there could be better buying opportunities down the road.
It's impossible to know if any of these companies will work out or if quantum computing will become a feasible technology. However, I think there are enough signs that it will be a big deal, and by taking a small portion in each of these three, investors can have a shot at incredible long-term returns.
