Quarterly Outlook
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Peter Garnry
Chief Investment Strategist
Chief Macro Strategist
Summary: Quantum computing is getting sudden massive attention from traders and investors on its potential, if still highly speculative, to drive advances in AI.
AI feels like a maturing industry when the likes of Nvidia, maker of the state-of-the-art chips and hardware and software platform at the heart of most AI data centres, has risen to rival Apple as the world’s largest company. Nvidia shares have risen 188% this year as of Friday, December 6. And if current earnings projections hold, Nvidia will be out-earning Apple as early as 2026.
But other AI-linked companies have been stealing some of the limelight recently as investors are always in pursuit of the “next big thing”. Judging from recent performance, the technology getting the most buzz at the moment for its AI potential is quantum computing, especially the only four pure-play quantum computing stocks discussed below.
Supportive factors for the very tiny and unprofitable quantum computing industry
The attention has been driven in part by news of advances in the technology and the dawning realization that quantum computing could excel at many AI-related computational tasks if it can realize its full potential. Announcements of partnerships and large investments have also played a large part in the burst of enthusiasm for the sector. Two weeks ago, bipartisan legislation introduced in the Senate would authorize USD 2.5 billion for research in quantum computing technology over the next five years. If it passes, this would be on top of considerable funding both direct and indirect for quantum tech in the Biden administration’s CHIPS and Science act that will last through 2026 and even 2027 in some cases. Elsewhere, in late November, Amazon Web Services unveiled “Quantum Embark”, an advisory program for clients interested in preparing for quantum computing technology.
Some words of warning
Investors should note that these companies are highly speculative and are priced for a huge pickup in revenue and earnings in coming years, with none earning any profits yet. They also have possible competitors in established large companies, especially IBM and Google-parent Alphabet, which both have made significant quantum computing investments. It is also worth noting that there have been two waves of enthusiasm for quantum computing since the pandemic – one in late 2021 and another in the summer of last year, both of which resulted in large rises and subsequent falls in the stocks below. Two final points: one, quantum computing is a fascinating technology, but has not fully proven its commercial viability after it was first introduced more than 25 years ago. Second, each of the companies has very different approaches to their technology – could one emerge the overall winner and render the others’ tech useless, or can multiple different approaches survive in the medium to longer term?
The four listed pure-play quantum computing stocks are all US listed. All data is as of the close on December 6, 2024:
IonQ Inc. (IONQ on NYSE)
Market cap: USD 8.2 billion
Stock performance since Nov 1: +365%
Financial performance: For the three quarters ending September 30, 2024, the company lost USD 171.6 million on revenue of USD 37.5 million.
Brief: This company is by far the largest of the four and uses laser-based, or “trapped ion” technology for its quantum computers and recently announced a partnership with NKY Photonics for next generation laser systems. This contrasts with IBM and Google’s superconducting approach. The purported advantage of the trapped ion technology is, among other very difficult concepts to understand, its high fidelity, which refers to the accuracy and reliability of the operations it performs. Access to its quantum computers is available through major cloud providers like Microsoft Azure, Amazon’s AWS, and Google Cloud.
Rigetti Computing
Market cap: USD 1.23 billion
Stock performance since Oct 1: +482%
Financial performance: In the three quarters this year ending Sep 30, 2024, the company lost USD 60.6 million on 11.9 million in revenue
Brief: The company both builds quantum processors and provides cloud infrastructure to access its hardware. It also has a hybrid computing model that combines quantum technology with “classical” digital tech. It has collaborated with Nvidia on that hybrid tech. Rigetti has a product roadmap that includes a new 100+ qubit system by the end of next year. Rigetti Computing got extra attention on November 25 when the company announced a USD 100 million stock offering which it would use for “general corporate purposes” this issuance actually waters down existing shareholders, but likely supported a rise in the shares because it was seen as giving the company more funds to invest in its tech.
D-wave (QBTS on NYSE)
Market cap: USD 912 million
Stock performance since Nov 1: +450%
Financial performance: For the three quarters ending September 30, 2024, the company lost USD 73.3 million on revenue of USD 9.4 million.
Brief: D-wave’s technology is called quantum annealing, which is designed to solve optimization problems for specific applications, as opposed to a general approach. Like Rigetti, it offers a hybrid approach to integrating classical infrastructure with its quantum resources to solve complex tasks. D-wave is collaborating with NASA and Google to find practical applications of its technology and has its own cloud service called Leap for anyone seeking to leverage its technology.
Quantum Computing (QUBT on Nasdaq)
Market cap: USD 937.5 million
Stock performance since Nov 1: +1,131%
Financial performance: In the three quarters through Sep. 30, the company lost 25.6 million on revenues of 0.4 million.
Brief: This company has a unique technological approach that uses something called nanophotonics, an optics-based that can work at room temperature, thus avoiding the energy-hungry super-cooling most other quantum computing tech employs. It has hopes to integrate its tech with existing IT infrastructure to solve practical issues sooner rather than later. The company has both tightened its belt and completed a USD 40 million stock offering to refresh its cash levels for investment. It also signed a contract with NASA to use its Dirac system for a project.