Quantum computing is a fascinating new field for technologists and investors alike, envisioning a new way of computing. Using a radically different technological process, quantum computing seeks to achieve orders of magnitude faster calculations. This will enable researchers to approach fields such as pharmaceutical drug research, weather forecasting, cybersecurity and computational chemistry in a whole new way. It’ll also enable big returns for quantum computing stock owners.
Will quantum computing be highly successful? That’s the multibillion dollar question, but it’s arguably too early to say. We’re in the first inning of the industry, if the game has even started yet. That said, some early front-runners are starting to take the field. These are seven quantum computing stocks to add to your watchlist today:
- Supernova Partners Acquisition Company II (NYSE:SNII)
- IonQ (NYSE:IONQ)
- Alphabet (NASDAQ:GOOG,GOOGL)
- Quantum Computing (NASDAQ:QUBT)
- IBM (NYSE:IBM)
- Microsoft (NASDAQ:MSFT)
- Applied Materials (NASDAQ:AMAT)
To be clear, quantum computing isn’t competing with traditional laptops or cell phones. It’s not seeking to improve existing computers. Rather, it is a new approach to the concept that would unlock a whole new field of technological research and innovation.
Quantum Computing Stocks to Buy: Supernova Partners Acquisition Company II (SNII)
Earlier this month, Rigetti Computing announced that it will be going public. This set off a burst of excitement in the nascent field of quantum computing. CEO Chad Rigetti offers a simple and clear bull thesis on the space: “In the next decade one Rigetti quantum computer could be more powerful than today’s entire global cloud.”
Supernova Partners Acquisition Company II, a special purpose acquisition company (SPAC), intends to purchase Rigetti. Once the deal is done, the company will change to the ticker symbol RGTI. The transaction should raise $458 million for the company, giving it a long pathway to establish its business.
Rigetti will need that cash. Quantum computing is just getting off the ground. It’s hard to even estimate how much market demand there is for the product yet. It’s also uncertain how quickly Rigetti or rivals such as IonQ will be able to ramp up their capabilities on the technical side. This a completely new technological frontier, so don’t expect too much certainty in terms of how things will play out.
Neither IonQ or Rigetti envision getting to $100 million in revenues until 2025. Needless to say, these are both concept stocks for the time being. You have to believe in the underlying vision of quantum computing to make a bet here. Otherwise, it’d be smart to move to other stocks on this list that incorporate quantum computing into a broader business plan or corporate strategy.
IonQ is a newly public company, coming public via SPAC merger just this month. dMY Technology Group bought IonQ, and the company changed to its new name and ticker symbol earlier in October.
IonQ beat Rigetti to market, making IONQ the first publicly-traded quantum computing stock. It is also backed by a host of influential investors including Bill Gates, Silver Lake and Fidelity.
Unfortunately, like many SPACs nowadays, IonQ mostly exists on paper. Which is to say, there’s very little operating business yet. IonQ generated no revenues in 2020 and doesn’t forecast significant revenues all that soon. In fact, it envisions remaining free cash flow negative through at least the year 2026. It also requires several technological leaps — such as machine learning — to get to a point where quantum computing could reach mass markets and make IonQ successful.
IONQ stock is intriguing since it is a way to place a flag on a newly-emerging industry. However, for more risk-averse investors, there are other quantum computing options to consider.
Back in 2019, Google claimed that it had achieved so-called quantum supremacy. The company said it had built a computer with abilities far beyond that of classical computers. In a report published in Nature, Google said that its quantum computer had managed to calculate something that would take 10,000 years to achieve with a normal machine.
It’s unclear what practical applications Google’s achievement will have in the real world as of yet. Its first calculation was more a demonstration of capability rather than a product that will have significant commercial impact anytime soon.
Like so many of its other ventures, Alphabet is investing heavily in the cutting edge of computing technology. Many of these ventures are unlikely to amount to much in terms of revenues. Others, however, will likely recoup all of the company’s research budget and then some. And the good thing with Alphabet is that it has so much going on that any one venture, such as quantum computing, won’t make or break the whole investment. If you like Google’s business anyway, quantum computing is simply an extra reason to own shares.
Quantum Computing (QUBT)
Quantum Computing is an innovative company focused on its namesake field. It sees a market opportunity in the ability to create a service coordinating computing needs.
You have quantum computing providers, such as IonQ or Rigetti. Then you have customers at major companies, universities, or research labs. Quantum Computing sits in the middle, producing software to help customers manage their quantum computing needs.
Right now Quantum Computing has minimal revenues. Management acknowledges that it still in the early stages of developing a market and understanding customer use cases. QUBT stock is highly speculative, as is the case for most of its sector peers. However, as the marketplace of quantum computing providers and clients grows, an intermediary service joining the two together could be a quite profitable niche.
It’s trendy to bash IBM nowadays. After all, the aging tech company has missed several major technological trends and seen its revenues fall for an unprecedented number of quarters in a row.
Management has been uninspiring. Tech analysts love comparing IBM to the likes of Radio Shack and Eastman Kodak (NYSE:KODK) as a dinosaur inevitably headed toward obsolescence.
The truth, however, is much more nuanced. IBM still generates $75 billion a year in revenues, and that figure is actually trending up once again. The company also sells for just 12x earnings, as its ongoing operations in consulting, services and cloud, among others, are highly profitable. And IBM continues to plow a huge sum of money into research and development, including quantum computing.
IBM’s quantum computing division promises to unlock information that is out of the reach of even the world’s fastest supercomputers today. IBM’s quantum computing partnership already has 160 Fortune 500 members participating, along with national labs and academic institutions. These partners are working on fields such as finance, chemistry and logistics.
As always, critics will say that IBM struggles to transform that potential into tangible revenues. However, IBM is much stronger than people give it credit for and at least one of its futuristic lines of business, such as quantum computing, could turn out to be a huge winner.
Like IBM, Microsoft wants to take leadership in the emerging quantum computing field. Microsoft has a built-in advantage in that its Azure cloud platform already has a huge installed base with a ton of Fortune 500 customers.
Now Microsoft is building its quantum computing capabilities directly into Azure. Microsoft describes this as “the world’s first full-stack, open cloud quantum computing ecosystem.”
It makes a ton of sense for quantum computing to end up as part of a cloud package. After all, most clients probably won’t need want their own supercomputers. Rather, they want the ability to buy that computing power only as needed.
If Microsoft can seamlessly build that experience into its native Azure platform, that could be a huge winner, both for that product as well as for securing increased cloud computing market share.
Applied Materials (AMAT)
Another approach to playing the quantum computing stocks is to position yourself long on suppliers. It can be hard to handicap which firms will be the eventual winners in this space given how new the technology is. However, it’s certain that if quantum computing becomes big, we’ll need faster and more capable semiconductors.
Applied Materials is one of the sector leaders in terms of patents held and industry know-how when it comes to making the sorts of chips that will go into quantum computing hardware. In a gold rush, you want to be the person selling shovels. Applied Materials should be one of those for the quantum computing industry.
Meanwhile, Applied Materials’s existing business is highly profitable. AMAT stock trades for just 22x earnings. That’s a rather attractive figure for a firm that has achieved compounded annualized earnings growth of 19% annually for the past decade.
On the date of publication, Ian Bezek held a long position in IBM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.