Quantum computing has gone through two boom-and-bust hype cycles in under a year, but that doesn't mean the technology is irrelevant. Instead, I think investors are focused on the wrong quantum computing stocks. While many have invested in quantum computing pure plays like Rigetti Computing and IonQ, some of the safer bets are in companies like Alphabet (GOOG +1.08%) (GOOGL +1.09%), Microsoft (MSFT +0.43%), and Nvidia (NVDA 0.56%).
All three of these larger companies have established cash flows that don't make quantum computing supremacy as dire as it is for the pure-play companies. As a result, they can take more measured approaches to this innovative technology, and I think it makes them much better buys overall.
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Microsoft and Alphabet are directly competing in the quantum computing race
The pure-play companies must disclose nearly every breakthrough or business win they achieve to attract investors. This makes them prone to hype cycles, which can eventually cause the stocks to crash once the market's appetite for risk decreases.
Alphabet and Microsoft aren't subject to the same hype risk, as they only announce massive milestone achievements for their quantum computing technology. Alphabet's most recent announcement regarding quantum computing was more than a month ago, when it announced running the first verifiable algorithm on its quantum computer. This is a big deal, as it shows that Alphabet can prove that its quantum computer is providing an advantage over traditional computing.
NASDAQ: GOOGL
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Microsoft has also been relatively quiet on the quantum computing front, with its last major announcement being in February when it promoted its Majorana 1 custom quantum computing chip. Microsoft claims to have created a unique state of matter for controlling the particles in this quantum computing chip, and believes that this technology will allow Microsoft to easily scale and solve enterprise-level problems without the need to iterate on architecture. That could be a huge advantage, but it's impossible to know where Microsoft stands with this technology, as it doesn't update investors on every breakthrough.
With the level of funding Alphabet's and Microsoft's quantum computing businesses have, they are both no-brainer picks in the industry. The pure-play companies will have a tough time competing against the sheer size and resources of these two, and I think that makes them top quantum computing stocks to buy right now.
Nvidia isn't directly competing in the quantum computing race
Nvidia is known for producing top-notch graphics processing units (GPUs), which are used to handle demanding workloads using classical computing. This could make GPUs a potential target for quantum computing, but not every workload that runs on GPUs can be run on quantum computing technology. Still, Nvidia wants a piece of the action, so it launched its NVQlink, which allows quantum computing units to plug directly into existing accelerated computing infrastructure.
This is a significant development, as it enables a hybrid quantum computing approach to flourish. It also keeps Nvidia in the running, as its GPUs fill data centers all over the world that could eventually be boosted by a quantum computing unit.
NASDAQ: NVDA
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This is a smart strategy for Nvidia, as it allows it to benefit from a new technology while also focusing the majority of its resources on developing GPUs for AI computing that are in massive demand today. Useful quantum computing is still years out, and investing in companies that are thriving in the current computing boom due to the artificial intelligence buildout is a smart move.
Alphabet, Microsoft, and Nvidia are all funding their quantum computing endeavors with cash flows from unrelated businesses, which will enable them to properly fund their quantum computing aspirations. As a result, these three are my best buys in this sector now.
