Quantum computing is generally recognized as the next big tech investing trend after the artificial intelligence (AI) race is wrapped up. AI spending is projected to continue through at least 2030, which is conveniently the same year that quantum computing technology is expected to achieve commercial viability. However, if you wait until 2030 to start investing in quantum computing, a lot of the gains will already be gone.
Although investing in early-stage quantum computing companies is inherently risky, I think investors should devote a small portion of their portfolio (say, 1% to 3%) to this emerging technology, as the gains that could come from this industry are enormous.
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How big is the quantum computing opportunity?
Quantum computing isn't expected to exist in a vacuum. The most generally accepted future for this technology is to work in a hybrid computing environment where current accelerated computing infrastructure (like that which is being built for AI) is used in tandem with quantum computing.
By combining these two technologies, users expect to unlock capabilities never before experienced. This includes AI training and inference, logistics network and supply chain optimization, statistical analysis, and weather modeling. Quantum computing will likely supercharge our current abilities and dramatically improve our current computing infrastructure.
Consulting firm McKinsey & Company estimates that the total quantum computing market opportunity by 2035 could be as much as $72 billion annually. That's a huge market that's expected to emerge over the next decade, making investing in it a no-brainer for anyone who has a long-term investment horizon.
Several companies are competing in the quantum computing race, so which ones are the best buys?
The quantum computing investment opportunities are endless
Because the quantum computing opportunity is forecast to be so large, it shouldn't surprise investors that legacy tech companies are competing against much smaller companies to establish themselves as the go-to supplier of quantum computing devices. While these larger companies are safer investment options, their upside is fairly limited. The odds are high that if you're already investing in AI, you likely own shares of companies like Nvidia (NVDA 2.13%), Alphabet (GOOG 2.49%) (GOOGL 2.30%), and Microsoft (MSFT 2.44%), which are all investing in quantum computing capabilities.
My two favorite quantum computing stocks that I think will soar during the next few years are IonQ (IONQ 7.83%) and D-Wave Quantum (QBTS 5.12%). Both of these companies are taking different approaches to the quantum computing realm, and both can thrive.
NYSE: IONQ
Key Data Points
IonQ's approach uses a novel technique known as ion trapping and yields superior accuracy results. This has allowed IonQ to emerge as the front-runner in the quantum computing race and has made several investors incredibly bullish on the stock. With its revenue rising 429% year over year in its latest quarter and IonQ holding the world record for the most accurate quantum computer, it's safe to say that things are going quite well for IonQ. Just because it's in the lead now doesn't mean it can't stumble, but it's the best option investors have right now.
D-Wave Quantum isn't focused on building a general-purpose quantum computer like IonQ. Instead, it's opting for a more specialized approach, which deploys quantum annealing. Quantum annealing looks for the lowest energy state in the system, which it then identifies as the optimal solution. Optimization problems happen to be the majority of tasks that quantum computing is expected to improve, so D-Wave's focused approach to this industry may give it a leg up on the competition in some areas.
NYSE: QBTS
Key Data Points
Although there's no guarantee of success with these two, they're my top picks in the space right now. By keeping a low exposure to these stocks, you can balance out the risk-reward profile through position sizing. Time will tell how these two pan out, but I think they are well worth the investment.
