Data is the fuel that keeps Wall Street moving. But between earnings season and near-daily economic data releases, it can be challenging for everyday investors to stay informed about what's moving markets. It can also allow something important to slip through the cracks.
For example, Nov. 14 marked the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. This is a required filing that allows investors to track which stocks Wall Street's smartest money managers bought and sold in the September-ended quarter.
Although 13Fs aren't without their shortcomings -- since they're filed up to 45 calendar days after a quarter ends, they may offer a stale snapshot for an active fund -- they can be just as valuable in highlighting key stocks and trends as quarterly earnings reports.
Image source: Getty Images.
This was an especially intriguing quarter to peruse 13Fs, given the rapid rise of quantum computing. Shares of pure-play quantum computing stocks IonQ (IONQ +2.49%), Rigetti Computing (RGTI +2.59%), D-Wave Quantum (QBTS +3.14%), and Quantum Computing Inc. (QUBT +4.42%) have respectively catapulted higher by as much as 1,490% over the trailing year. With gains of this magnitude, it pays to know how Wall Street's brightest minds are approaching this scorching-hot innovation.
What you might be surprised to learn is that none of these four high-flying stocks is popular among Wall Street's billionaire money managers. Instead, billionaires have anointed a member of the "Magnificent Seven" as the smartest way to gain exposure to the quantum computing revolution.
Quantum computing pure-play stocks have soared -- but billionaires have kept their distance
In its simplest form, quantum computing involves the use of specialized computers to solve complex problems that classical computers can't tackle. This game-changing technology can revolutionize the drug-development process, weather forecasting, and cybersecurity platforms, among other use cases.
Although estimates vary, which is not uncommon for early stage innovations, Boston Consulting Group believes quantum computing can create $450 billion to $850 billion in worldwide economic value 15 years from now.
NYSE: IONQ
Key Data Points
Pure-play stocks IonQ and Rigetti Computing have also received a boost from Amazon and Microsoft, whose quantum cloud services, Braket and Azure Quantum, are allowing subscribers access to their respective quantum computers.
However, billionaire investors have mostly shied away from IonQ, Rigetti, D-Wave, and Quantum Computing Inc., and historical precedent may explain why.
Since the mainstream proliferation of the internet began roughly 30 years ago, there hasn't been a game-changing technology or hyped innovation that's escaped an early innings bubble-bursting event. These bubbles occur because investors frequently overestimate the adoption, utility, and optimization of new technologies. It takes time for innovations to mature.
In many respects, quantum computers and their applications have not been widely commercialized. This means businesses are still in the process of determining how quantum computers can enhance their sales and profitability.
History also clues investors into the likelihood of bubbles forming and bursting. In the years leading up to the bursting of the dot-com bubble, some of Wall Street's leading internet businesses (at the time) peaked at price-to-sales (P/S) ratios ranging from 30 to 40. This arbitrary range has served as a threshold to help identify potential bubbles for three decades.
As of the closing bell on Nov. 21, the trailing-12-month P/S ratios for IonQ, Rigetti Computing, D-Wave Quantum, and Quantum Computing Inc. varied between 130 on the low end (IonQ) to 2,661 on the high end (Quantum Computing Inc.). Even looking years into the future and assuming triple-digit annual sales growth wouldn't move these four pure-play stocks out of historical bubble territory.
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This is the "magnificent" quantum computing stock to own, according to billionaire investors
Rather than own shares of pure-play quantum computing stocks that could be hit hard if the bubble bursts, multiple billionaire fund managers have put their money behind Magnificent Seven member and Google parent Alphabet (GOOGL 0.41%)(GOOG 0.20%).
According to 13F filings from the end of September, Alphabet stock is the:
- Second-largest holding for Baupost Group, which billionaire Seth Klarman runs.
- Third-largest holding for Tiger Global Management, which billionaire Chase Coleman oversees.
- Third-largest holding for Pershing Square Capital Management, which billionaire Bill Ackman heads.
Furthermore, Berkshire Hathaway's soon-to-be-retiring CEO, Warren Buffett, oversaw the purchase of more than $4 billion worth of Alphabet shares (Class A, GOOGL) during the third quarter.
The core reason Alphabet makes for such a smart quantum computing stock is that it has several foundational operating segments already in place that are all generating boatloads of operating cash flow.
NASDAQ: GOOGL
Key Data Points
The company's best-known operating segment is its internet search platform, Google. According to data from GlobalStats, Google has maintained an 89% to 93% share of the worldwide internet search market for more than a decade. With a virtual monopoly on internet search, Google enjoys substantial ad-pricing power and benefits from the nonlinear nature of the economic cycle (i.e., expansions, on average, lasting much longer than recessions).
Alphabet is the parent of streaming services site YouTube, as well, which is the second most-visited website around the globe. Similar to Google, YouTube's presence commands strong ad-pricing power in most economic climates.
Not to be forgotten is Google Cloud, the world's No. 3 cloud infrastructure service platform by total spend. Google Cloud is pacing more than $60 billion in annual run rate sales and could easily become the company's cash cow by the turn of the decade.
The point being that Alphabet has profitable, established operating segments, and it's sitting on a mountain of cash ($98.5 billion, including cash equivalents and marketable securities, as of Sept. 30). It has the flexibility to make aggressive investments into quantum computing without adversely impacting its existing operations.
In December 2024, Alphabet introduced the world to Willow, its newest quantum processing unit, capable of reducing errors and performing calculations at a lightning-fast pace. Just last month, Willow helped facilitate calculations that were 13,000 times faster than the world's fastest classical supercomputers.
With the expectation that quantum computing will take years to evolve and mature, billionaires are wagering on Alphabet as their favorite stock to gain exposure to this potentially game-changing technology.
