Artificial intelligence (AI) has been rapidly transforming industries and reshaping our daily lives, positioning itself as one of the most profound technological revolutions in modern history. But we may now be on the brink of an even bigger transformation. Enter quantum computing -- a fundamentally different, more powerful, and more efficient way of processing information.
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While classical computers work with bits of 0s and 1s to handle information, quantum machines use qubits, which can exist in multiple states at once. This enables them to tackle complex problems that can be challenging even for the fastest supercomputers today. Analysts project that the combination of quantum computing and AI could generate more than $1 trillion in economic value by 2035.
Here's why these two prominent quantum-AI companies are smart picks for long-term investors.
1. International Business Machines
When we think about the technology giant International Business Machines (IBM 0.29%), it is mainly related to its mainframes and enterprise software business. However, for a long time, the company has been gradually working to become a leader in the more ambitious field of quantum computing. In the second quarter of fiscal 2025 (ending June 30), IBM achieved a significant milestone: the deployment of IBM Quantum System Two in Japan with RIKEN, its first installation outside the U.S.
NYSE: IBM
Key Data Points
IBM has been focused on making quantum computing accessible to researchers, developers, and enterprises through the cloud. The strategy seems to be paying off. The company has already reached cumulative bookings of nearly $1 billion for its quantum business from 2017 to early 2025 -- implying that quantum computing is gradually moving from the lab to the monetization stage. The company has already deployed over 75 quantum systems in production since 2016.
IBM plans to demonstrate quantum advantage by 2026 and reveal the first error-corrected quantum computer (which can reliably detect and correct computational errors during operation) by 2028. The company is also committed to building a large-scale, fault-tolerant quantum computer (detecting and correcting internal errors continuously while running complex operations) by 2029.
IBM has developed a robust open-source quantum computing software ecosystem called Qiskit, which enables researchers and businesses to focus on building practical quantum applications and running them on IBM quantum hardware through the cloud. The approach seems similar to Nvidia's strategy of strengthening the Compute Unified Device Architecture (CUDA) software ecosystem, which prevents customers from easily switching to other GPU providers. Qiskit is also expected to create a sticky customer base for IBM.
IBM has a very healthy business to support its future quantum computing initiatives. In the second quarter, the company delivered $17 billion in revenue, representing a 5% year-over-year increase, while non-GAAP (generally accepted accounting principles) earnings per share rose 15% year over year to $2.80. The company generated $4.8 billion in free cash flow and ended the second quarter with $15.5 billion in cash on its balance sheet.
Both the Red Hat enterprise software and automation businesses grew 14% year over year in the second quarter. The company's hybrid infrastructure business, within its infrastructure segment, has also gained traction. The IBM Z platform within hybrid infrastructure saw revenues soar by 67% year over year in the second quarter. This was mainly driven by the increasing adoption of hybrid cloud architecture for AI workloads.
IBM trades at 21.9 times forward earnings, significantly lower than its five-year average forward price-to-earnings (P/E) multiple of 38.7x. Besides a reasonable valuation, IBM is also offering investors the best of both worlds: a cash-rich business for today and an expanding quantum computing footprint for tomorrow. This makes the stock an attractive pick now.
2. IonQ
IonQ (IONQ +1.45%) is one of the few pure-play quantum hardware companies in the market today. Unlike competitors such as IBM and Alphabet, which use superconducting electrical circuits (cooled at very low temperatures, so there is no electrical resistance, and circuits behave like atoms with discrete energy levels), IonQ uses trapped-ion qubits (charged atoms or ions confined using electromagnetic fields) that are precisely controlled by laser.
Management believes this design offers cost and power advantages compared to alternative technologies. This can prove to be a key differentiator for IonQ as systems scale in size.
NYSE: IONQ
Key Data Points
Although slower than superconducting qubits, the trapped-ion quantum computing system results in more stable qubits that help reduce error rates -- critical while working with complex algorithms. IonQ is already witnessing commercial success for its offerings. The company has forged partnerships with Japan's AIST G-QuAT and South Korea's KISTI to advance national quantum computing initiatives. IonQ is also working on a $22 million project to build the first commercial quantum computing and networking hub with EPB in the U.S.
Besides ecosystem partnerships, the company is also aggressively advancing commercial deals. IonQ has collaborated with AstraZeneca, Amazon, and Nvidia to accelerate drug development workflows. Additionally, IonQ is working with Oak Ridge National Laboratory and the U.S. Department of Energy to tackle energy grid optimization. Hence, trapped-ion quantum computing systems are definitely shifting from theory to critical real-world applications, such as healthcare and energy.
All this is translating into improved financial performance. In the second quarter of fiscal 2025 (ending June 30), revenues soared 81.8% year over year to $20.7 million, ahead of the top end of the revenue guidance by nearly 15%. The company has a strong balance sheet, with $1.6 billion in pro forma cash (as of July 9) following a $1 billion equity raise. Management expects fiscal 2025 revenues to fall in the range of $82 million to $100 million.
IonQ now aims to reach 800 logical qubits (virtual qubits made by combining thousands of fragile physical hardware qubits, and are capable of detecting and correcting errors during computation) by 2027 and 80,000 by 2030. The company is making rapid strides toward solving commercial problems meaningfully across several industries.
IonQ faces execution risk and has not yet achieved profitability. The company also trades at a price-to-sales ratio of over 380x, which is extremely rich. Despite this, IonQ offers exposure to the significant opportunity in quantum computing, without dilution from legacy business. Hence, investors who can tolerate short-term volatility may consider taking a small stake in this stock due to its significant upside potential.
