Quantum computing has the potential to revolutionize numerous industries by enabling calculations and simulations beyond the scope of classical computers. Major technology companies and startups are racing to develop and commercialize this emerging technology. As an investor, you may be wondering if and how to gain exposure to the quantum computing sector. This article provides an in-depth analysis on publicly traded stocks, private investment opportunities, and other options to consider.
The Exciting Promise and Challenges of Quantum Computing
By leveraging quantum mechanical phenomena like superposition and entanglement, quantum computers can theoretically perform certain tasks exponentially faster than traditional computers. Researchers believe quantum computing will pave the way for breakthroughs in areas like drug discovery, artificial intelligence, cryptography, financial modeling, and more.
Projected Quantum Computing Market Growth
Source: Quantum Computing Report
However, developing practical, general-purpose quantum computers presents immense scientific and engineering obstacles. Existing quantum computers have limited capabilities and may take years or decades to progress substantially. The winning strategies and companies have yet to emerge from intense competition between rival technological approaches.
The timeline to commercialization remains uncertain. But the market outlook is extremely promising, with some estimates seeing the quantum computing market growing from $472 million in 2024 to over $65 billion by 2030 at an astounding 58% CAGR. For investors open to high risks and long time horizons, quantum computing stocks could provide exposure to this potentially transformative and highly lucrative technology sphere.
Analysis of Publicly Traded Quantum Computing Stocks
Many major public technology companies, from Alphabet (Google) to IBM to Honeywell, are actively researching and developing quantum computers or related technologies. However, quantum computing exposure generally remains a very small part of these conglomerates‘ overall businesses.
Let‘s analyze some key players in more depth:
Alphabet (Google) (GOOGL)
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World leader in quantum computing research
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Has designed proprietary quantum processors optimized for machine learning
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Does not break out financials for quantum business
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Google Trends search interest score of 100 for "quantum computing" shows the technology resonating strongly with the public
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With over $100 billion in cash reserves, Alphabet has the resources to continue investing heavily in emergent technologies like quantum
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Key risk is whether Google‘s quantum hardware and software efforts will succeed against tough competition
IBM (IBM)
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50+ year legacy in advanced computing research including multiple Nobel prizes
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Vast patent portfolio with over 150 quantum computing related patents
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Launched "IBM Quantum" cloud services platform and quantum network
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Disclosed $200M+ investment into quantum in 2020
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Quantum revenues still likely negligible portion of overall $73B in revenues
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Stock performance lagging technology peers over past decade
Investors seeking more concentrated exposure may consider "pure play" quantum computing stocks:
Quantum Computing Inc. (QUBT)
- Small-cap company focused on quantum software and applications
- Stock price increased over 60% from Jan 2021 to Jan 2023
- Increased revenue to $2.7M in 2022, but still operating at a loss
Rigetti Computing (RGTI)
- Recently went public via SPAC deal in March 2022
- Building modular superconducting quantum computers
- Strong leadership team with over $200M raised pre-IPO
These emerging quantum stocks naturally carry substantial risk but also growth potential. Conduct thorough due diligence before investing to understand their technology, commercialization roadmaps, leadership teams, and financial positions.
Public Quantum Computing Stock Performance
| Company | 1 Year Return | Market Cap |
|---|---|---|
| Quantum Computing Inc. (QUBT) | 62% | $114M |
| Rigetti Computing (RGTI) | -26% | $768M |
| IBM (IBM) | 4% | $112B |
| Alphabet (GOOGL) | -27% | $1.4T |
1 Year Returns as of January 2023
We see the small, high-risk/high-reward quantum stocks dramatically out/underperforming the tech giant incumbents. This performance differential is expected given the dynamics of emerging vs. established public companies.
Private Investment Opportunities in Quantum Startups
For accredited investors, private quantum computing startups like PsiQuantum, IonQ, Xanadu, and D-Wave provide more concentrated exposure options:
Private Quantum Computing Funding
| Company | Total Funding | Description |
|---|---|---|
| PsiQuantum | $663M | Photonic quantum computing |
| IonQ | $175M | Trapped ion quantum computers |
| Xanadu | $145M | Photonic quantum computers and software |
| Quantum Circuits Inc | $50M | Superconducting quantum computing |
Source: Crunchbase
These well-funded startups are attracting investment from major VC firms including Sequoia Capital, RRE Ventures and Goldman Sachs. Significant funding signals their promising technologies and progress.
Investing in private companies has its challenges, including long lockup periods and loss of liquidity access. But the returns can prove highly rewarding should they achieve liquidity via IPO or acquisition. If interested, partnering with an experienced fund or platform like EquityZen can help access deals and properly evaluate opportunities.
Quantum Computing ETF Provides Diversified Exposure
Exchange-traded funds (ETFs) offer a diversified way to invest in emerging technologies. QTUM from Defiance ETFs covers advanced computing stocks from quantum, cloud, machine learning and related categories.
Launched in April 2021, QTUM had $593M in net assets as of January 2023. It provides liquid exposure to this high-potential sphere:
QTUM ETF Holdings Breakdown
However, QTUM does come with some drawbacks:
- High expense ratio of 0.68%
- Only about 25% directly involves quantum computing companies currently
- Holdings skewed heavily towards hardware (Nvidia) over software
As the quantum industry matures, more targeted ETF products will likely emerge. Until then QTUM offers a reasonable diversified option.
SWOT Analysis of Leading Quantum Computing Approaches
There are several competing technological architectures vying to power full-scale, general quantum computation abilities. Let‘s analyze their comparative Strengths, Weaknesses, Opportunities and Threats:
| Quantum Computing Approach | Strengths | Weaknesses | Opportunities | Threats | Prominent Company(ies) |
|---|---|---|---|---|---|
| Superconducting | Very low temperatures enable fragile quantum states | Expensive cryogenic cooling required | Modular designs may simplify scaling to larger qubit counts | Prone to errors and noise | Rigetti |
| Photonic | Uses miniature photonic microchips suited for some algorithms | photon-photon interaction still challenging | Large global optical communication network makes long-distance quantum transmission robust | Significant hardware advances still needed | PsiQuantum, Xanadu |
| Trapped Ion | Uses precisely controlled individual atoms, long qubit coherence times | Slow gate times limit computation speed | Best characterized errors to date, promising for achieving quantum error correction | Vacuum chambers are bulky; complex manufacturing | IonQ |
| Topological | Combine quantum physics and topology for unprecedented stability | Very new approach with limited demonstrations so far | Fault-tolerance theoretically built-in | Scaling to large systems remains unproven | Microsoft (research stage) |
There is vigorous debate over which approach or combination of approaches will prove superior for mainstream quantum use cases. At this stage it appears prudent to diversify exposure across the various qubits types until definitive “winners” emerge.
Investment Risks and Mitigation Strategies
While the long-term upside for quantum computing could prove tremendous, investors must weigh the profound risks and uncertainties involved with this still extremely emerging technology.
Key Quantum Computing Investment Risks
- Long and uncertain timelines to commercial viability
- High failure rates likely across both hardware architectures and software applications
- Intense competition between rival companies and national quantum initiatives
- Technological obsolescence should superior qubit types get discovered
- Lack of clarity around optimal business models for quantum technologies
- Scarcity of quantum computing investment expertise
Risk Mitigation Strategies
- Seek portfolio diversification across multiple public stocks, private investments, and quantum ETFs
- Balance hardware and software quantum exposures
- Allocate only a small portion of assets to quantum computing investments
- Invest smaller amounts today to gain upside access, while preserving dry powder for future cycles
- Closely track technical advancements and adjust exposure accordingly
What quantum computing ultimately enables may exceed even the loftiest expectations and projections. However, prudent investors should steel themselves for a long and turbulent ride enroute to those possibilities coming to full fruition. Maintaining reasonable return assumptions and disciplined risk management provides the best formula to sustain exposure over the durations likely required.
Conclusion: Quantum Potential Warrants Some Investor Attention
Given the profound impacts quantum computing could unleash across industries, some exposure may warrant consideration in investors‘ portfolios, balanced by the risks involved. The right strategy depends significantly on individual risk tolerance, return objectives and investable capital.
Public stocks, private deals, and ETFs each provide viable ways to participate in this highly dynamic sphere. While widespread profitable use cases could take a decade or longer to emerge, the quantum computing landscape continues advancing at accelerating speed. Tracking developments closely and periodically revisiting exposure levels can keep investors plugged into the innovations slowly turning sci-fi visions into reality.