Quantum computing stocks represent an industry that has been around for a while. The field leverages quantum mechanics at subatomic scales and is being applied to boost computing speeds.
Quantum computing has, in the past few years, begun to get more and more attention. The sector really heated up during the pandemic pre-quantitative tightening. It cooled as rates increased and riskier lending became more expensive.
As we approach peak interest rates and an end nears, investors will begin to look at quantum computing stocks again. AI is a big part of the logic behind doing so. It will supercharge development in the field and could lead to breakthroughs. Thus, it’s a good idea to invest early in anticipation of the reemergence of quantum computing stocks.
Defiance Quantum ETF (QTUM)
Investors would be wise to consider Defiance Quantum ETF (NYSEARCA:QTUM) for a balanced, low-risk introduction to quantum computing stocks. Its largest holding is the second firm discussed in this article, IonQ, at 2.27%.
QTUM shares offer lower operating costs, ease of trading, transparency, and tax efficiency when compared to individual stocks. Defiance Quantum ETF tracks the BlueStar Quantum Computing and Machine Learning Index. Given its AI/ML exposure, it should be no surprise then that QTUM shares have appreciated quickly this year. They’ve returned 14.97% year-to-date and more than 21% over the last year.
You’ll pay 0.4% in net expense ratio to have your investment managed by a portfolio manager. 1% is the net expense ratio considered ‘too high’ generally speaking, so QTUM shares are not expensive.
QTUM shares have ranged as high as $53 over the last 52 weeks and as AI has cooled they’ve fallen back to $44 at present. That is a good entry point for inexpensive exposure to the confluence of AI and quantum computing.
IonQ (NYSE:IONQ) is your best bet for maximum exposure to the growth of the quantum computing sector. The company does all quantum computing development and IPO’d earlier this year through a special purpose acquisition company (SPAC).
To be clear, IonQ is in many ways, the opposite of QTUM, immediately above. Start-ups, SPACs, and emerging technology all under one roof equates to higher risk overall.
IonQ is heavily invested in cloud computing. The firm is partnered with the 3 major cloud firms. The confluence of quantum computing, AI, and cloud promises to produce real growth moving forward that can make investors a lot of money.
IonQ’s most powerful computer, called Aria, is being leveraged toward Amazon’s AWS services and its leading cloud. That makes it a strong bet overall given AWS’ dominance.
IonQ isn’t making much money right now and is going to continue to invest heavily and incur large expenses for the near future, but if it pays off, it’ll pay off big.
IBM (NYSE:IBM) stock has floundered over the last decade. It’s a legacy technology firm that has lost its way and is trying to regain its former glory. IBM’s strategy to do so includes a focus on AI, cloud, and a segment dedicated to quantum computing.
Those bets are paying off. The company has leveraged its Watson AI and focused on creating a suite of generative AI tools. Early booking data suggests that IBM’s strategy is working and an annual run rate of $1 billion is expected after the firm bested expectations.
IBM has a dedicated quantum computing business unit, IBM Quantum. More than 200 firms and research organizations are using IBM Quantum to develop enterprise solutions in the field. IBM is aligned with the defense sector as it relates to quantum computing and AI. Other defense adjacent firms including Palantir (NYSE:PLTR) have soared this year as AI begins to take root in the national security realm.
FormFactor (NASDAQ:FORM) is a semiconductor firm that also makes cooling equipment used in quantum computing.
The stock benefits from trends that are just catching on and with chip demand likely to grow alongside AI’s continued growth, FormFactor will grow. The company sells test equipment. Thus, it’s a picks-and-shovels play.
Outside of chip testing equipment, FormFactor also sells cryogenic systems. The so-called probe stations are chambers that are cooled to extremely low temperatures and used for testing chips for defects. Those same chambers have utility in quantum computing which also requires powerful chips.
FormFactor clearly benefits from secular trends. The long-term potential of the chip sector is high. Expectations of continued growth due to AI, machine learning, and quantum computing give FormFactor powerful catalysts overall.
Its cooling and testing equipment has every chance to be sold at higher volumes in the near future and its shares will ebb and flow with the chip sector.
Name a technology, and Microsoft (NASDAQ:MSFT) probably has some interest and exposure thereto.
Microsoft has laboratories and world-class researchers in any number of fields doing varied research. Quantum computing is part of that.
Hardware, software, specialized cooling equipment, and more are being developed by the company. If Microsoft decides that quantum computing is the next big thing, expect it to move first as it did with OpenAI and ChatGPT. It’s an industry shaper so the fact that it is developing quantum computers is a signal worth watching.
Investing in Microsoft is not a strong investment in quantum computing per se. Quantum computing revenues are a very minor part of its business. Choose MSFT shares for the dozen other strengths it possesses but keep in mind that quantum computing is a part of it.
Azure is a major cloud provider. AI is being integrated there as fast as possible. Quantum computing promises to accelerate AI and could realistically compound the rapid shifts we’re already experiencing. That makes MSFT a strong bet and it offers much less risk than upstart firms in the space.
Intel (NASDAQ:INTC) used to be the biggest chip stock. It isn’t any longer following many missteps. That leaves Intel, like IBM, searching for its former glory.
The company’s strategy to turn itself around rests on several pillars. The firm’s Arizona chip factories are a big part of that strategy.
Intel is positioning itself to take advantage of shoring up its efforts in the semiconductor industry. Construction of those factories is the major driver of its turnaround.
Intel is also developing a quantum computing chip called Tunnel Falls. The company is working with its partners to test that chip as part of its overall turnaround effort. As with the other large tech firms here, Intel isn’t yet moving heavily into quantum computing. It remains a future technology that is part of a longer-term vision.
AI is the current focus along with reshoring. In time though, quantum computing chips like Tunnel Falls will play a bigger part in Intel’s turnaround story.
Honeywell (NASDAQ:HON) offers industrial software and is a stock that’s commonly mentioned alongside megatrends like IoT and to a degree, AI.
The company recently reorganized into three business segments to take advantage of mega-trends. It’ll now be automation, aviation, and energy transition that drive Honeywell overall.
The move is unlikely to change much of Honeywell’s day–to-day operations and it will continue to do much of the same things. It’ll still be heavily focused on the IoT building automation opportunity. More and smarter chips will be required for that effort. In short, it’s the same industrial firm it was with a slightly revamped direction.
However, Honeywell is also a quantum computing firm which many people might not recognize. Honeywell built a quantum computing unit which was spun off, merged, and is now known as Quantinuum. Honeywell owns a 54% stake in that firm.
That means Honeywell is a lesser-known quantum computing firm with a vested interest in the continued development of the sector and a revenue-generating asset therein.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.