Last year, the S&P 500 (^GSPC 1.27%) and Nasdaq Composite (^IXIC 1.50%) rose by 16% and 20%, respectively -- registering double-digit percentage gains for the third year in a row. Unsurprisingly, one of the biggest tailwinds fueling the stock market to new highs in 2025 was bullish sentiment around artificial intelligence (AI).
Within the AI landscape, quantum computing stocks were some of the biggest winners. In particular, growth investors have taken a liking to smaller developers over the usual suspects in big tech. For the past year, IonQ, Rigetti Computing, and D-Wave Quantum have been some of the biggest beneficiaries of the quantum AI trade.
While following momentum stocks can be tempting, the "smart money" on Wall Street is increasingly flocking toward one quantum computing hopeful in particular -- and it's not any of the pure-plays, but a household name you probably use almost everyday.
Read on to learn why investing in mainstream quantum computing stocks could be risky, and find out which AI leader the smartest billionaires on Wall Street are increasingly flocking to for their exposure to the quantum opportunity.
Image source: Getty Images.
Why pure-play quantum computing stocks look risky right now
One of the most common investing mistakes that beginners make is assessing a company's valuation through the lens of its share price. Another way of saying this is just because a stock trades for what is perceived to be a low share price doesn't mean it is inherently a bargain. Instead, smart investors need to take a thorough look at valuation multiples to understand where a stock may be headed.
IONQ PS Ratio data by YCharts.
The chart above illustrates trends in the price-to-sales (P/S) ratio among the most popular quantum computing pure-plays. Despite their volatility, each of the mainstream quantum AI favorites has undergone meaningful valuation expansion throughout the AI revolution.
To add some context here, internet pioneers such as Microsoft, Amazon, and Cisco all reached peak P/S multiples between 30 and 50 during the height of the dot-com boom. Just one year after the dot-com bubble burst in March 2000, Cisco -- which was, at the time, the most valuable company in the world -- had lost more than of 70% of its market value.
Given the valuation trends above, I think it's fair to say that IonQ, Rigetti, and D-Wave are trading well beyond bubble territory. Hence, an investment in any of these stocks at their current prices could prove unwise.
Billionaires are pouring into Alphabet -- here's why
The analysis above isn't meant to scare investors away from investing in quantum computing. Instead, as with all megatrends, investors simply need to do their due diligence and identify which companies have a compelling long-run narrative.
If institutional buying activity tells us anything, investors are becoming overwhelmingly bullish on Alphabet (GOOGL 1.45%) (GOOG 1.49%). During the third quarter, the following billionaires bought Alphabet stock for their portfolios: Stanley Druckenmiller, Israel Englander, Philippe Laffont, Ken Griffin, and Warren Buffett.
NASDAQ: GOOGL
Key Data Points
Indeed, Alphabet has invested in its own quantum computing roadmap -- namely through the development of its custom quantum processor, Willow. However, I think the upside from quantum computing is only one variable that the star-studded line-up of investors above are taking into account.
Alphabet's AI ecosystem encompasses internet search, consumer electronics, autonomous vehicles, defense tech, cloud computing, custom silicon, and energy infrastructure management. Here's the big picture: Alphabet has quietly built a formidable vertically integrated business model that touches nearly every major component of the AI value chain.
Against this backdrop, investors can see that quantum computing is just one of many catalysts Alphabet can lean on as the AI revolution continues.
Image source: Getty Images.
Is Alphabet the best quantum computing stock?
Determining whether Alphabet is the "best" quantum computing stock is purely a matter of opinion. That said, I certainly think the company is a top choice in the AI and quantum-specific landscape.
GOOGL Net Income (TTM) data by YCharts.
During the past year, Alphabet has been the most profitable among hyperscaler AI developers -- even more so than Nvidia. It's this excess cash flow that provides Alphabet with a nearly unmatched level of financial flexibility that it has used to enter new markets -- quantum computing being just one of them.
With this in mind, I think institutional capital recognizes that Alphabet has positioned itself as a durable, resilient business that can manage growth in just about any economic cycle. For these reasons, I think Alphabet is set up for a prolonged period of continued revenue acceleration and profit margin expansion as the AI revolution continues to unfold.
In my eyes, Alphabet stock is a no-brainer buy right now. Investors with a long-run time horizon may want to take a page out of the billionaire playbook and scoop up some shares.
