Most quantum computing stocks trade like lottery tickets -- pre-revenue companies burning cash while promising to revolutionize everything from drug discovery to cryptography. The Defiance Quantum ETF (QTUM +2.84%) takes a different approach, blending speculative pure plays with profitable tech giants already investing in quantum research.
The diversification this exchange-traded fund (ETF) offers matters more than ever as quantum stocks reach eye-watering valuations. The fund provides exposure to quantum's upside while acknowledging an uncomfortable truth: Nobody knows which approach will actually work. Here's an overview of this quantum computing ETF.
Image source: Getty Images.
Quantum's promise meets reality
Quantum computing harnesses the bizarre properties of quantum mechanics to perform calculations impossible for classical computers. The potential applications span drug discovery, financial modeling, artificial intelligence, and cryptography -- markets collectively worth hundreds of billions of dollars.
But potential and reality remain far apart. Most quantum computers require near-absolute-zero temperatures, operate with error rates that make results unreliable, and can't maintain quantum states long enough to solve practical problems. The technology is roughly where classical computing was in the 1950s -- scientifically fascinating but commercially unproven.
That uncertainty shows up in how the Defiance Quantum ETF is constructed. The fund tracks the BlueStar Quantum Computing and Machine Learning Index, holding 80 positions with varying degrees of quantum exposure. Pure-play quantum companies like IonQ and Rigetti Computing sit alongside tech giants like Nvidia and Advanced Micro Devices that are building quantum-enabling infrastructure.
This mix is intentional. After all, the three major pure-play quantum stocks all trade at sky-high revenue multiples while burning cash at an alarming rate. By adding a clutch of profitable companies, the Defiance Quantum ETF offers a balanced approach to a speculative theme.
More on the fund's diversification advantage
The fund's 38% year-to-date gain through Oct. 22 reflects growing excitement around quantum breakthroughs. Alphabet announced its Willow quantum chip in December 2024, demonstrating error correction that could enable practical applications. IBM continues expanding its quantum network, now counting over 250 partners using its quantum systems.
Compare that to owning individual quantum start-ups. If D-Wave Quantum or Quantum Computing Inc. fail to commercialize their approaches in the broad sense, shareholders face potentially catastrophic losses. The ETF structure caps that hefty downside, given that no single holding exceeds a low-single-digit percentage weighting.
NASDAQ: QTUM
Key Data Points
The fund also captures indirect quantum beneficiaries. Semiconductor equipment makers like Applied Materials and ASML Holding will supply the specialized chips that quantum computers require. Cloud infrastructure providers offering quantum computing as a service generate revenue regardless of which quantum approach ultimately wins.
Understanding what you're buying
The 0.4% expense ratio is reasonable for thematic exposure requiring specialized index construction. You're paying for research and rebalancing that maintains exposure as the quantum landscape evolves.
The fund's 0.7% yield is essentially negligible -- quantum computing is a growth story, not an income play. Investors should expect volatility. Pure-play quantum stocks can move 20% in a single session on news about qubit counts or error rates that mean little for near-term commercialization.
The bigger question is timing. Quantum computing may deliver revolutionary capabilities, or it may remain a laboratory curiosity for another decade. Experts debate whether a useful quantum advantage will arrive in five years or 25. The ETF structure doesn't eliminate this uncertainty; it just spreads the risk.
The patience premium
Quantum computing will either transform computing or prove to be an expensive dead end. The Defiance Quantum ETF offers exposure without requiring you to become a quantum physicist, evaluating competing approaches. You get the established cash flows from tech giants funding quantum research, plus the lottery ticket potential of pure-play start-ups.
Now, that diversification comes at a cost. You'll never capture 100x returns if a single quantum start-up cracks the code. But you also won't face wipeout risk if a quantum winter arrives.
For investors who believe quantum computing represents genuine innovation but lack conviction about which company will commercialize it first, this ETF offers the easiest path forward. Just understand that this ETF isn't a lottery akin to some of the pure-play quantum computing companies.
