Investing in Quantum Computing: A Smart Stock Choice

The excitement around quantum computing might not be as substantial as it appears. It's crucial to focus on some surprisingly established companies within this fascinating field.

Quantum computing has captured a lot of attention lately. Just six months ago, the four leading companies focused solely on quantum computing had a combined market value of $1.9 billion. Today, that number has skyrocketed to $15 billion, peaking at $19.2 billion in early January.

Choosing a Winner in Quantum Computing Challenges

Despite the growing interest, I am not recommending these specialized stocks at the moment. While these companies may become significant players in the quantum world eventually, they are more likely to face challenges and struggles along the way. Their current business performance is mostly insignificant, and their high stock prices are based on overly optimistic projections about advancements in quantum technology.

Quantum Computing Specialist	Market Cap	Revenues (TTM)	Net Losses (TTM)	Price-to-Sales Ratio (TTM)
IonQ (IONQ -1.70%)	$8.8 billion	$37.5 million	($171.6 million)	233
Rigetti Computing (RGTI -3.31%)	$3.1 billion	$11.9 million	($60.6 million)	258
D-Wave Quantum (QBTS -3.00%)	$1.8 billion	$9.4 million	($73.8 million)	191
Quantum Computing (QUBT -3.03%)	$1.3 billion	$0.4 million	($27.9 million)	3,208

Data retrieved from FactSet via Finviz.com on February 7, 2025. TTM = trailing twelve months.

I sincerely wish these quantum firms and their shareholders success. However, I prefer to invest in well-established companies that are also exploring quantum computing technologies.

For the pure-play quantum companies, getting the research right is essential for survival. In contrast, larger firms can afford to treat quantum computing as a side project. If the anticipated quantum breakthroughs do not materialize soon, I can still benefit from the growth in their core businesses.

Let’s explore one company that sparked the latest surge in the market—Google’s parent company, Alphabet.

Google's Willow Chip and the Quantum Boom

The recent enthusiasm surrounding quantum computing was ignited by a significant advancement from Google's Quantum AI team.

They introduced the Willow chip, demonstrating promising progress in error correction, suggesting future products could handle noisy data more effectively using qubit processing units. The notable highlight of this progress was Willow's capability of executing a benchmark in under five minutes, a task that would take a classical supercomputer an incomprehensible 10 septillion years to complete.

It’s important to note that this benchmark was designed to showcase the strengths of quantum computers. The random circuit sampling (RCS) test simulates a complex quantum processing scenario that classical computers struggle with.

"It verifies whether a quantum computer can perform tasks that classical computers cannot," the Google team elaborated. "Any team developing a quantum computer should first check if it surpasses classical computers on RCS."

So, while the Willow chip executed some quantum computing processes not easily replicated by classical systems, its error correction advancement impressed me even more.

However, many investors misinterpreted this announcement as a sign that quantum computers are capable of outperforming classical computers right now. Taking such leaps in conclusions can be detrimental to your investment portfolio.

Meanwhile, the Google Quantum AI team continues its research. The error-correction achievement was the second step in a comprehensive six-step roadmap, with the next phase focusing on developing long-lived qubits with improved error-handling capabilities.

This roadmap will take years to complete. The ultimate goal is to develop a large error-corrected quantum computer with millions of qubits instead of hundreds. However, the team has not set any deadlines for this significant milestone, and various discussions in the quantum sector indicate this goal might still be about 20 years away.

Low-Risk Quantum Computing Investments

Alphabet is not the only tech giant venturing into advanced quantum computing research.

Other influential players are taking various approaches. IBM holds more patents related to quantum technology than any other company. Microsoft is working on incorporating quantum computing systems into current cloud platforms. Nvidia is developing specialized software for quantum software innovations.

Among these tech leaders, I believe any would be a better investment in quantum computing than the smaller firms mentioned previously. Nonetheless, none match Alphabet’s attractive valuation today. For example, Alphabet's price-to-sales ratio is a compelling 6.5. Thus, if you're aiming to invest in a future powerhouse in quantum computing that's also a smart buy presently, Alphabet checks both boxes.

Disclaimer: The author holds positions in Alphabet, IBM, and Nvidia. The author also acknowledges that these companies have been recommended. It is advised to review the full disclosure policies when considering investments.

Quantum, Investment, Technology