Quantum computing has risen to the top of many investors' must-have lists over the past few years, driving up the share prices of niche players in this space, including D-Wave Quantum Inc. (QBTS +10.72%).
D-Wave's share price has surged by over 433% in the past year alone, although it has recently pulled back as investors have become increasingly concerned about speculative investments. Still, the quantum computing market appears very frothy right now, and the timeline for widespread real-world applications of quantum computing seems lengthy.
Here's why investors should avoid D-Wave right now and opt for picking up shares of tech leader Alphabet (GOOGL +2.53%) (GOOG +2.92%) instead.
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Why you should forget about D-Wave right now
Let's start with quantum computing's long path toward practicality. Many experts, including those from some quantum computing companies such as Alphabet, believe it will be many years, and possibly even a decade, before real-world use cases for quantum computing emerge.
That's particularly troubling for quantum computing pure plays like D-Wave. The company had just $3.7 million in sales in the third quarter, while its net loss widened from $0.11 per share to $0.41 per share. With such minimal sales and widening losses amid a potentially long runway before quantum computing takes off, investors are taking a big bet on the company.
What's more, D-Wave's shares currently have a very high price-to-sales ratio of 325 -- compared to the average P/S ratio of 9 for the tech sector -- making the company's stock priced for perfection. If it doesn't deliver sales and eventually earnings at a breakneck pace, investors could quickly lose interest and abandon this stock.
Why Alphabet is a better quantum computing play
It surprises me that we currently hear so much about a potential AI bubble, but far less so about a quantum computing bubble. After all, many AI companies have lots of revenue and earnings to back up their share price gains.
That's why I think it's worth zooming out and viewing the big picture with quantum computing, focusing on companies that are already tech leaders and doing significant things in the space, such as Alphabet.
NASDAQ: GOOGL
Key Data Points
The company released a quantum computing processor, called Willow, last year, that it says "paves the way for a useful, large-scale quantum computer" and was a breakthrough in error correction. The company also recently created what it calls a "Quantum Echoes" algorithm, which ran 13,000 times faster than the world's most powerful supercomputer.
The advantage Alphabet has over D-Wave and other pure-play quantum computing players is that it had $2.87 per share in earnings, $102 billion in revenue, and $24.4 billion in free cash flow in its third quarter. In short, it's massively profitable and has the cash resources to invest in new areas of growth like quantum computing for years to come.
If quantum computing takes off in the near future, Alphabet's current developments will help the company tap into it. However, if the timeline extends over many years or even a decade, Alphabet will benefit from its lead in artificial intelligence, advertising, and software in the meantime.
