Have you ever wished you could go back in time and invest in trailblazing companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), or Tesla (NASDAQ:TSLA) before they hit it big? Well, you may just have that chance again today with quantum computing stocks.
The futuristic field of quantum computing has faced some bumps on its road to mainstream adoption lately. The recent Nasdaq correction has hit many once-hot quantum computing stocks hard. But this correction also presents a golden buying opportunity for investors who take the long view.
Quantum computing may sound like science fiction, but it’s likely to become a commercial reality sooner than you think. Leading experts predict quantum computers will reach the tipping point of usefulness within this decade. When that happens, early investors could be richly rewarded.
The problem is, quantum computing technology is highly complex and many companies trading in this space have business models that are speculative. We’re in the early innings of this technological revolution, so plenty of quantum stocks carry substantial risk.
However, the long-term growth prospects in quantum computing are too great to ignore. Quantum computing could drive massive progress in fields like AI, materials science, cryptography, and more. It could fundamentally reshape our digital infrastructure and lead to innovations we can’t even imagine yet.
Scooping up promising quantum computing stocks now, while they’re under pressure and trading at a discount, could put you firmly on the path to long-term wealth creation. Let’s dive in!
Of all the quantum computing stocks, Honeywell (NASDAQ:HON) strikes me as one of the safer yet potentially lucrative options for investors. Naturally, the quantum computing market is highly-volatile and speculative at this early stage. However, Honeywell has stood out from the pack thanks to its ties to the defense and aerospace industries. The company has been a prime beneficiary of higher defense spending in cutting-edge areas like aerospace and intelligence. With geopolitical tensions rising, Honeywell’s government business seems poised for further growth.
That said, Honeywell also has an intriguing pure-play quantum computing segment called Honeywell Quantum. Since its formation in 2021, Honeywell Quantum has quickly become a quantum computing leader. It recently became the first company to “integrate quantum-computing-hardened encryption keys into smart meters for gas, water and electric utilities”
While HON stock has sagged recently amid a broader market downturn (and a revenue miss in its latest quarter), I view this as a buying opportunity. At 20-times forward earnings, Honeywell seems attractively-priced, given its leading positions in must-have aerospace and defense technologies. The company generates mountains of recurring revenue and cash flow to support future R&D and growth initiatives like quantum computing. The company aims to launch a powerful quantum computer called Model H1 in 2023.
For a relatively low-risk play on the quantum computing revolution, Honeywell fits the bill nicely. The company offers stability from its government-contracted businesses, while also providing upside from emerging technologies like quantum computing.
If you desire a pure-play quantum computing stock, look no further than IONQ (NYSE:IONQ). Since going public, IONQ has emerged as one of the frontrunners in the quantum computing race. While very speculative, IONQ offers tantalizing growth potential.
IONQ has pioneered the use of trapped ions to construct quantum computers. This approach aims to minimize error rates and heating effects compared to rival technologies. The company uses ytterbium atoms suspended in electromagnetic fields for its qubits. Thus far, the results look highly promising.
Earlier this year, IONQ unveiled its next-generation quantum computer called Forte. With a planned 32 algorithmic qubits, it would be the world’s most powerful trapped ion-based quantum computer on the market. Previously, IONQ’s systems were only accessible via the cloud. However, Forte will also be available as an on-premise solution for select partners. This quarter, IONQ achieved a major milestone by reaching quantum volume 29.
Let’s put the good news on the sidelines for now. There are a lot of caveats with this company, but my biggest problem with IONQ is unprofitability. Currently, its balance sheet held over $509 million in cash against $44 million in losses in the most recent quarter. Profitability remains years away, as product development costs weigh heavily on its bottom line.
Another big caveat for me is the stock’s massive volatility. Unless you are okay with that sort of risk and are willing to hold for years, I would recommend you avoid pure plays like these and focus more on the two other stocks in this list.
Back to the established giants on this list, IBM (NYSE:IBM) looks ideally positioned to capitalize on the commercialization of quantum computing. Indeed, if any company can make quantum computing mainstream, IBM seems like the top contender.
While much less speculative than pure plays, IBM still offers substantial upside potential, in my view. The company operates the IBM Quantum Network, which allows customers to access IBM’s advanced quantum computing systems. Over 210 Fortune 500 companies leverage this network for research and education. As quantum computing grows more practical, IBM’s massive customer base gives it an enormous head start over rivals.
Additionally, IBM continues pushing the boundaries on quantum computing performance. Last year, it unveiled its new Osprey processor, which has a quantum volume of 128, double its previous system. IBM aims to launch a 1,121-qubit quantum computer this year, more than doubling its power again. Indeed, IBM may very well become the first to develop quantum computers powerful enough for mainstream business and scientific use.
Besides its growth upside, IBM also offers safety. At just 16-times earnings, IBM is cheap compared to other large tech firms. It generates prodigious free cash flow to support both growing the quantum business and rewarding shareholders.
On the date of publication, Omor Ibne Ehsan 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.