In early December, Google introduced a quantum computing chip, Willow, that engineers used to solve the hardest benchmark in the field.
A post on the Alphabet (GOOGL) subsidiary's blog explains the significance of the achievement:
"Willow's performance on this benchmark is astonishing: It performed a computation in under five minutes that would take one of today's fastest supercomputers ... 10 septillion years. If you want to write it out, it's 10,000,000,000,000,000,000,000,000 years. This mind-boggling number exceeds known timescales in physics and vastly exceeds the age of the universe."
The announcement sent Alphabet stock soaring, with GOOGL up more than 5% on December 10. It also ignited a massive rally for companies in the quantum computing space.
That initial rally has cooled. But quantum computing stocks will continue to attract interest from investors.
What is quantum computing?
Traditional computers encode information as 0s and 1s, essentially operating as an intricate network of on and off switches. This simple yet elegant binary design has powered decades of innovation and progress.
Quantum computing flips this model entirely. It steps into the fascinating, albeit spooky, world of quantum mechanics. Quantum computers use qubits, which can actually exist in multiple states simultaneously. This is known as "superposition."
"When qubits are entangled, what happens to one affects the others, even if they're separated," writes Mabel Oza, an adjunct professor at the University of Illinois at Chicago for blockchain and cryptocurrency and the founder of ChaChing Social. "This interconnectedness is key to the power of quantum computers."
The potential of quantum computing is enormous.
"Getting to large-scale quantum computing will enable the world to solve its biggest problems in minutes — in the time it would take today’s supercomputers to do in millions of years," said Karthee Madasamy, founder and managing partner at MFV Partners. "That could create $850 billion in economic value by 2040."
As for investment opportunities, there are different ways to play quantum computing. One is to focus on big-cap technology stocks like Google, Nvidia (NVDA), Microsoft (MSFT) and IBM (IBM). But the impact of quantum computing technology on their income statements and balance sheets may be muted because they have other large revenue streams.
There are emerging pure-play companies in the category, including some that are publicly traded.
Let's take a look at three of them.
Rigetti Computing
Founded in 2013, Rigetti Computing (RGTI) has deployed 17 quantum computing systems. Rigetti uses cutting-edge techniques like alternating-bias assisted annealing and multiple processors that provide high levels of accuracy.
This is the result of heavy investments in R&D. Among its 140 employees, 49 are PhDs. Rigetti has also amassed a portfolio of 237 issued and pending patents for quantum engineering, fabrication and algorithms
Rigetti reported third-quarter revenue of $2.4 million and a net loss of $14.8 million. But, with the run-up in its stock price, the company was able to raise $100 million via a public offering. Before the capital raise, Rigetti had $92.6 million in the bank.
But this is a technical not a financial story. Indeed, In December Rigetti announced its 84-qubit Ankaa-3 system, which achieved a median two-qubit gate (2QG) fidelity of 99.5%.
"This measures how accurate a quantum computer is by testing the performance of a two-qubit gate under different conditions," Professor Oza notes. "It's a key operation in quantum computing and is essential for connecting qubits and enabling complex calculations."
IonQ
After more than two decades in the academic world, Chris Monroe and Jungsang Kim cofounded IonQ (IONQ) in 2015.
Monroe and Jungsang licensed critical technology from the University of Maryland and Duke University. The co-founders also went on to raise capital from New Enterprise Associates, Google, Amazon.com (AMZN) and Samsung Electronics.
IonQ has built an impressive IP (intellectual property) portfolio and now controls more than 600 U.S. and international issued and pending patents.
The focus on R&D has certainly paid off. In September, IonQ announced its next-generation system, which achieved a 2QG fidelity level of 99.9%. The company says it will get to 99.999% by the end of 2025.
As a sign of IonQ’s strength, the company has been able to snag a variety of key partnerships, including deals with AstraZeneca (AZN), ANSYS (ANSS) and the United States Air Force Research Lab.
IonQ reported in November that third-quarter revenue doubled to $12.4 million. And there's $382.8 million in cash on its balance sheet.
D-Wave Quantum
D-Wave Quantum (QBTS) got its start back in 1999. The company's co-founders from the University of British Columbia saw a need for innovation with qubit designs.
Getting to commercialization has certainly taken awhile. Then again, only in recent years has the industry gained traction with customers.
"One of the most positive trends we're seeing at D-Wave is the growing number of customers moving applications into production," said CEO Dr. Alan Baratz. "Because we offer annealing quantum computing, a type of quantum computing that is uniquely suited for solving complex optimization problems and is commercial-grade now, our customers are realizing value from the technology today."
Customers are seeing considerable benefits. In a pilot test with Japan's largest mobile phone operator, NTT DOCOMO, D-Wave's systems reduced paging signals during peak calling times by 15%.
In early January, D-Wave announced that fiscal year 2024 bookings will exceed $23 million, which would mark a 120% year-over-year increase. The company also raised $175 million in equity offerings to bolster its balance sheet.
Too much, too soon?
In his keynote address at CES 2025 in January, Nvidia CEO Jensen Huang said that effective quantum computers wouldn't hit the market until 15 to 30 years from now.
Quantum computing stocks plunged on reports of Huang's comments.
A few days later, Meta CEO Mark Zuckerberg made similar statements.
Microsoft President and Chief Operating Officer of Strategic Missions and Technologies Mitra sees things differently.
"As our industry looks toward the next 12 months, the pace of quantum research and development is only going to accelerate, making this a critical and catalyzing time for business leaders to act," Azizirad wrote in a January 14 post on the company's blog.
Views among high-placed executives vary. The bottom line is investors should remain cautious, as the quantum computing sector is and will be highly volatile. If you choose to buy quantum computing stocks, make sure they are included in the part of your portfolio devoted to speculative plays.
One way to reduce company-specific risk is the Defiance Quantum ETF (QTUM).
Top holdings include Rigetti Computing, IonQ and D-wave as well as larger companies like Marvell Technology (MRVL), Teradyne (TER), Taiwan Semiconductor Manufacturing (TSM) and NXP Semiconductors (NXPI).
