Growth stocks are coming off a painful 2022. And with another big Federal Reserve rate hike imminent, market volatility is likely to continue. However, long-term investors can capitalize on the opportunity by investing in broader technology trends at discounted rates. One such opportunity is offered by quantum computing stocks.
Quantum computing aims to reinvent the future of advanced computation. Historically, computing power has grown at a predictable rate, largely constrained by Moore’s Law. This is the observation that computational costs halve as the number of transistors on a semiconductor chip tends to double every two years. This has long determined the pace of innovation in the computer industry.
However, we are reaching physical limits with the size of the manufacturing technologies. To achieve further exponential gains, a new computational technique is needed. Enter quantum computing. Corresponding Microsoft’s (NASDAQ:MSFT) Fact Sheet, “Quantum computers take the unique behaviors of quantum physics—like superposition, entanglement, and quantum interference—and apply them to computers.”
If successfully applied commercially, this new technique could offer breakthroughs in areas as diverse as artificial intelligence, biotechnology, computational chemistry and autonomous driving. Here are seven quantum computing stocks that should benefit.
|WELL, Google||alphabet||$105.90, $105.02|
|IBM||International Business Machines||$128.04|
|QBTS||D Wave Quantum||$7.86|
Alphabet (GOOG, GOOGL)
Many discussions about quantum computing start with alphabet (NASDAQ:WELLNASDAQ:Google) Warehouse. In 2019, Google announced it had achieved quantum supremacy when its Sycamore quantum computer quickly computed a problem that would take existing supercomputers thousands of years to solve.
That claim has since come under fire. In 2022, Chinese scientists responded that they had built a classic computer that could do the calculation in a similar time frame and outperform Sycamore. As is done with the latest science, much rivalry and competition remains.
In any case, Google’s announcement sparked a land rush in the quantum computing space. Google is in a unique position in that if the Sycamore project is increasingly successful, it could leverage it for a variety of other futuristic ventures like artificial intelligence, healthcare, and autonomous driving. It can be a long time before a quantum computing company contributes much to Google’s revenue given the size of its core search and advertising business by comparison.
However, GOOGL stock is clearly part of the quantum computing discussion.
NVIDIA (NASDAQ:NVDA) is targeting a range of next-generation technology applications. One of them is quantum computing. Nvidia appears to be marketing itself as a pick and shovel of sorts to gain exposure in the industry.
This can be done by creating quantum simulations. Here is the company’s statement: “NVIDIA cuQuantum is an SDK with optimized libraries and tools to accelerate quantum computing workflows. With NVIDIA GPU Tensor Core GPUs, developers can use cuQuantum to accelerate quantum circuit simulations by orders of magnitude based on state vector and tensor network methods.”
NVDA stock has had a rough 2022 so far, with shares losing half of their value year to date. Graphics card prices fall as the gaming backlog clears and demand from the cryptocurrency community eases. Nvidia could be in for a tough time going into 2023 given the current macroeconomic headwinds. However, its innovations in emerging areas like quantum computing show that the company has much to look forward to despite its current challenges.
International Business Machines (IBM)
International Business Machines (NYSE:IBM) has been working on the development of its own quantum computer systems for some time. And it has had considerable success to date. Its Hummingbird computer system will reach an operational capacity of 65 qubits in 2020. IBM aims to surpass the 1,000 qubit mark in the next few years. The capacity of qubits is a key consideration for when this technology might reach commercial viability.
Investors might be skeptical about IBM’s capabilities here. After all, the company has long promoted Watson, its artificial intelligence-based computer system that answers questions in natural language. Watson has proven adept at winning at games like chess and Jeopardy, but hasn’t achieved the level of commercial exposure that IBM stock bulls may have previously hoped for.
Will IBM’s quantum computing company follow a similar path? Only time can tell.
However, IBM maintains a highly profitable core business while having one of the most powerful research and development teams in the world. Items like IBM’s quantum computing arm serve as upside options that could suddenly see IBM shares surge higher.
Microsoft (NASDAQ:MSFT) used to be known for overlooking several major technological trends such as smartphones. However, it has gotten much better at leading new movements. The company’s early and determined entry into cloud services with Azure has been extremely successful. And now Azure is giving Microsoft a bridgehead towards quantum computing.
Microsoft is building a quantum ecosystem within Azure. Microsoft offers quantum computing solutions to its customers both through Microsoft’s own internal products and with its partners.
This is easier for customers as they can access quantum computing solutions through their existing cloud hosting instead of having to purchase a physical quantum computer. It also creates a tremendous bond for Azure in an increasingly competitive cloud computing industry. Quantum computing is still in its infancy and it remains to be seen how customers will end up using and paying for this technology.
Of course, Microsoft’s leadership in both office software and cloud computing should carry over to leadership in the quantum space as well.
Rigetti Computing (RGTI)
The last three quantum computing stocks to buy are pure plays. It should be noted from above that these are far more risky than the others on the list. These companies have yet to generate significant revenue or fully prove their business models.
Rigetti computing (NASDAQ:RGTI) in particular is one of the most important SPACs that have recently emerged in the context of quantum computing. Rigetti claims to have some of the most powerful quantum computing technologies available. And it has impressive research partnerships with organizations like the US Air Force and the Department of Energy.
Rigetti made just $8.2 million in sales in 2021 and is expected to bring in around $12 million this year. The company is likely years away from generating significant commercial demand. However, for pure-play quantum computing stocks, Rigetti is a watch to watch, and shares are certainly discounted after a 75% drop from their original price.
D-wave quantum (QBTS)
D Wave Quantum (NYSE:QBTS) is the latest quantum computing stock to hit the market. It recently completed its SPAC merger with DPCM Capital. QBTS stock has fallen from $10 to $8 in the first month of trading, bringing a discount to new investors today.
D-Wave is based in Vancouver and has been in business since 1999. D-Wave Quantum is still in the early stages of monetization, with just $8 million in projected revenue for this year.
However, the company has some strong metrics in other respects. It has more than 200 US patents, 100 published papers and a top 5 patent portfolio in the field of quantum computing. D-Wave claims to have more than 100 customers and offers the first real-time quantum computing platform. How successful D-Wave will be remains to be seen. However, as a new SPAC with a limited trading volume, the stocks could pop up on any kind of positive developments.
This is by far the most controversial choice on this list. IonQ (NYSE:IONQ) claims to have “the world’s most powerful quantum computer.” Short seller company Capital of Scorpio, but called the company a “blatant scam” in a lengthy 183-page report. For investors who aren’t quantum physicists, it can be difficult to evaluate the merits of the company’s technology and the resulting short seller claims.
What we do know is that IonQ has barely generated any revenue so far. Even by its own admission, there is still a long way to go before it develops enough qubits to generate significant commercial demand and eventually reach profitability. It was also easy for short sellers to pursue SPACs with unproven business models. Many of Scorpion’s points about the company’s current financials could be right without depreciating its entire technology platform.
In any case, IONQ stock remains the largest single holding in the Defiance Quantum ETF (NYSEARCA:QTOM) as of September 12. For investors willing to speculate on a high-risk, high-reward quantum computing stock, IONQ stock is certainly cheaper now than it was a year ago.
At the time of publication, Ian Bezek held a long position in IBM shares. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publicity guidelines.