[Editor’s note: This story was previously published in August 2018. It has since been updated and republished.]
Quantum computing applies the laws of quantum mechanics to process information. As people do not see quantum processes in their day-to-day lives, this technology can be difficult for non-scientists to understand. This also makes finding the best quantum computing stocks difficult for investors.
Instead of acting on binary ones and zeros, quantum adds “superpositioning” to the ones and zeros. This so-called “superpositioning” allows ones and zeros to exist in multiple states at one time. It also allows “entanglement,” which syncs particles separated by vast distances. This allows systems to factor large numbers that traditional computing technology could not.
Naturally, quantum computing could advance many technologies, and by extension, the stocks of many tech-oriented companies. Quantum processes will significantly expand abilities in fields such as cryptography, algorithms, communications, defense, and basic computing.
Unfortunately, this technology will not reach the mainstream for years. Consequently, no pure-play stocks exist as D-Wave Systems remains private for now. Still, investors who would like to buy into the quantum-computing revolution at a reasonable valuation should look at these quantum computing stocks today:
Alphaber (GOOGL, GOOG)
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), the parent company of Google, has served as one of the best quantum computing stocks. Google has reached a market cap of over $850 billion based mostly on its algorithms. Maintaining such leadership in future years will require quantum computing.
Google has described itself as “close to quantum supremacy.” It unveiled Bristlecone, a chip with 72 quantum bits (qubits), its fundamental unit of computation. This beats the previous record of 50. While the company is still years from applying Bristlecone to its bottom line, it still makes Alphabet an industry leader.
While buying GOOGL stock would invest one in quantum computing, it will not come cheap. The stock currently trades at a forward price-to-earnings (P/E) ratio of 27.29. While not as high as some, it exceeds S&P 500 averages.
Analysts expect average annual profit growth to exceed 18% per year over the next five years, however. And though quantum computing remains a small part of Google for now, maintaining this edge in quantum processing will be critical to the company’s long-term success.
AT&T (NYSE:T) probably does not strike investors as an obvious quantum computing stock. The telecom giant is best known for telephone service in past decades and internet and wireless services today. Most of the focus for future technology has revolved around 5G wireless service.
What makes T stock one of the best stocks in quantum has come from the company’s research arm, AT&T Labs. The company has no plans to build quantum computers. However, they view quantum from the standpoint of minimizing latency.
They envision two network edges. The 5G edge will be one. Another edge involves a quantum-based edge where the data follows the user. Hence it will use quantum computing so large amounts of data do not overtax its network.
Due to factors related to 5G, T stock trades at a bargain. This slow growth is likely due to the high costs of the 5G rollout. Analysts only expect 6.2% average annual profit growth over the next five years. However, T stock offers benefits value investors should not ignore. First, trades at a forward P/E ratio of just over nine. This comes in over 50% below its five-year average P/E of 10.55.
The dividend also pays an impressive 6.74% yield. Due to T stock’s dividend aristocrat status, the company can ill afford to end its multi-decade streak of dividend increases. Hence, the dividend will likely continue moving higher. Though T stock serves as a more indirect quantum play than some investors might like, the low P/E and high dividend should serve as a draw.
IBM (NYSE:IBM) has become one of the leading companies and best stocks in quantum computing. Their quantum initiative, called IBM Q, seeks to build what it calls, “commercially available universal quantum computers for business and science.” Quantum remains in the research phase now. Still, within five years, the company expects both professionals and developers will be using this technology directly.
Also, compared with other top quantum plays such as Microsoft or Alphabet, IBM stock trades a low valuation. It currently trades at a forward P/E of 14.57. The five-year average P/E stands at just over 12.9. Also, due in large part to new initiatives such as quantum, Wall Street expects profit growth to return.
Moreover, it has grown its dividend throughout history. The dividend yield now stands at about 5.61%. IBM stock can also claim dividend aristocrat status in three years so IBM will likely keep increasing the dividend. Even if growth disappoints for the foreseeable future, quantum computing should play a large role in taking the IBM stock price and the dividend higher in future years.
Intel (NASDAQ:INTC) has made a comeback as it builds a future beyond the PC market that sustained the company for decades. Building quantum computers is now one of INTC’s options for sustained growth. As silicon transistors have reached the limits of what they can handle, technology must adapt. And Intel now leads the way in this endeavor.
Intel combines silicon with existing technologies to produce the world’s smallest quantum chips. Taking these so-called “spin qubit” chips to market will require further research as right now they can only operate at absolute zero. Still, Intel continues working to advance the power of its processors even as the limits of silicon slows down the rate of increase.
The good news for investors is that INTC trades at a relatively low valuation. It has risen substantially from the depths of the PC decline in 2013. Still, it trades at a forward P/E of about 11.91. This stands well below the 15.6 average P/E for the last five years. Also, growing prominence in the data center space and a comeback in PCs bolstered INTC stock. Analysts believe that growth will average over 10.2% per year over the next five years.
Investors will also earn profit via the currently 2.27% dividend. With a low P/E, double-digit growth and a high, growing dividend, INTC stock is poised to become one of the best quantum computing stocks in the post-PC era.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) could provide one of the more direct ways available to invest in privately-held D-Wave. The world’s largest defense contractor became the first customer of D-Wave as it sought to gain an early edge in quantum computing.
Lockheed bears some of its highest costs in what it calls verification and validation. Today’s technology forces the company to tests scenarios on an individual basis. Through quantum computing, the company could then test multiple solutions all at once, ensuring quality and reliability at a much lower cost.
Like quantum, LMT finds itself on a roll. Boosted by tax cuts and increased defense spending, LMT stock expects to see profits rise by an average of 47% per year over the next five years!
Despite this growth, the forward P/E ratio stands at only about 16.97. The company has also increased its dividend every year since 2003. Its annual dividend comes to a yield of about 2.5%, well above S&P 500 averages.
Microsoft (NASDAQ:MSFT) has also taken an interest in quantum computing. Ever since Satya Nadella took over the company, Microsoft has become one of the largest companies in the cloud. Also, with its experience in software, a focus on the future of quantum could make MSFT one of the best stocks in this space.
One of the latest innovations in quantum computing is the Q# programming language. Microsoft’s most recent push involves offering free intro courses in Q#. The hardware technology to make full use of this language has not yet been developed. However, such a language could place the company in a prominent position once the hardware catches up.
Due in part to these advances, MSFT stock will not come cheap. Even on a forward basis, the P/E of 26.57 stands near S&P averages. Wall Street also expects average annual growth to reach 12.4%.
Dividends, have not been as impressive as some of the other quantum computing stocks at just 1.61%. Still, they have increased every year since 2010. With a little patience, they could soon become a large part of the profits for MSFT stock.
MSFT stock has served as a huge software innovator. With its development of Q#, it will likely play a major role in quantum for years to come. Despite a higher P/E in recent years, quantum-driven profits for MSFT stock should grow well into the future.
Most people think of Nokia (NYSE:NOK) as the former cellphone king swept aside by the smartphone. However, the company has since redefined itself, purchasing Alcatel-Lucent and reinventing itself as a telecom equipment provider in the 5G space.
While 5G can bring it into the future, it will likely need quantum computing to continue its growth. It now owns Nokia Bell Labs, and this division recently discovered several materials that can act as superconductors. With the traditional silicon chips unable to perform quantum functions, these discoveries have become critical.
NOK stock currently trades at around $6.22 per share. The stock trades well below the 2007 high attained when it dominated cellphones. Also, the dividend yields almost 3.59%. This dividend has bounced around over the years. Still, analysts expect average annual profit growth of about 16.8% for the next five years. Given that level of profit growth, any dividend cut becomes much less likely.
NOK stock should perform well soon due to its 5G equipment. However, much of its reinvention will center around quantum computing, particularly in future years. If that comes to pass, NOK could become one of the best stocks in this field.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.