Quantum computing is having a moment. Once the stuff of science fiction, functional quantum computing could soon be a reality. This belief has led retail investors to pile into pure-play quantum stocks, with many having suddenly found themselves with multibillion-dollar market capitalizations.
Let's consider two of the most prominent: IonQ (IONQ +0.39%) and D-Wave Quantum (QBTS +2.50%). Which is the better pick for those looking to invest in this potentially revolutionary technology?
NYSE: IONQ
Key Data Points
Quantum computers solve different problems
Classical computers, like your iPhone, process information using tiny circuits that are either on or off at any given moment. These states are represented by bits: 1's (on) and 0's (off). The chip at the core of an iPhone contains billions of these switches, called transistors, and each one can only be in one state at a time -- either 1 or 0. There are only two options.
Not so in a quantum computer. Quantum bits, or qubits, can exist in multiple states simultaneously -- a phenomenon known as superposition -- allowing quantum computers to model incredibly complex systems that would take even the most powerful supercomputers years to solve.
If perfected, quantum computers could revolutionize cryptography, drug discovery, and materials science, solving problems that classical computers currently cannot, and may never be able to. The opportunity is enormous, but it's important to remember that practical, large-scale quantum computing is still very much in development.
IonQ is focusing on stability, while D-Wave is focused on scale
Qubits are finicky and extremely unstable, causing quantum computers to suffer from high error rates. Solving this is one of the core issues facing the industry. IonQ is attempting to tackle this head-on; its "trapped ion" technology, while complicated, expensive, and difficult to scale, creates some of the most stable qubits on the market.
Image source: Getty Images.
D-Wave, on the other hand, is focused on scaling. Its "annealing" approach leads to higher qubit count, but at the cost of stability. The company has also chosen to build "hybrid" systems that combine quantum and classical.
It's impossible to know what approach -- if any -- will ultimately lead to a viable quantum computer. At present, it seems that D-Wave's annealing technology may lead to higher qubit systems today. However, it may be more limited in its upside over the long run. IonQ's trapped-ion technology may take longer to perfect and more resources to implement, but if developed successfully, it could create a much more powerful quantum computer, one that would live up to the hype.
Quantum research has a long way to go
All of this potential, however, is exactly that: potential. The current valuations of D-Wave, IonQ, and other pure-play quantum stocks have expanded well beyond what makes sense at this point in the technology's development.
D-Wave's current application of its technology is extremely limited in scope. The company has found customers willing to pay, but its $22 million in trailing-12-month revenue (TTM) hardly justifies a market capitalization of over $11 billion. It's also impossible to know how much actual quantum computing is happening in its hybrid quantum systems.
NYSE: QBTS
Key Data Points
And while IonQ pulls in more revenue, its market cap is just as inflated: its $53 million in TTM revenue is dwarfed by its $21 billion market value. The company has a history of bold claims that fall well short of reality -- a history it shares with most of the quantum industry. In 2020, for instance, IonQ's founder and CEO until this year, Peter Chapman, said we were just five years away from having quantum desktop computers. This should raise serious concerns for investors.
The better buy: Neither, for now
If I had to pick, I would give the edge to IonQ, but at this point I would avoid pure-play quantum stocks altogether. Instead, I would opt for a company with the cash flow to continue developing the technology for as long as it takes.
