computing

Quantum computing pure-play stocks have been on an unbelievable run over the past few weeks. One year ago, Rigetti Computing (RGTI -3.01%) was essentially a penny stock, trading for less than $1 per share. Now, it’s worth nearly $50 per share. A huge chunk of that growth has come recently, as Rigetti Computing traded for about $15 at the start of September.

There have been numerous headlines that have driven Rigetti Computing’s stock higher over the past few weeks, and after these unbelievable returns, some may be wondering if it’s time to take some profits and move on. However, should Rigetti Computing continue going higher, investors will miss out on some lucrative returns.

So, which course of action is the best?

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Rigetti Computing has soared on a few pieces of news recently

Rigetti Computing is a quantum computing pure play and has no backup business. For Rigetti, it’s quantum computing supremacy or bust. This is no easy feat, as the quantum computing space is filled with other strong competition like Alphabet and International Business Machines (IBM). Both have nearly unlimited resources compared to Rigetti, which makes this uphill climb even more challenging.

However, there are signs that Rigetti will be just fine. Just recently, it announced that it has sold quantum computing systems to two customers for about $5.7 million. One was to an Asian manufacturing company, while the other was a California physics and AI start-up. This shows Rigetti Computing already has a competitive offering for clients, as these two likely shopped around for other options before settling on Rigetti’s Novera quantum computer.

Another headline that caused Rigetti’s stock to pop was JPMorgan‘s announcement that it was investing up to $10 billion in four areas, one of which is quantum computing. This caused shares across the sector to pop, which has me worried that the quantum computing sector may be getting too hot.

In addition to quantum computing, JPMorgan was also planning on investing in supply chains and advanced manufacturing, defense and aerospace, and energy. There are a lot of mouths to feed in those investment sectors, and it’s not like JPMorgan is going to dump all $10 billion into quantum computing stocks. Furthermore, there was no specific announcement that JPMorgan would invest in Rigetti Computing; it was just that it was interested in investing in the sector.

After the pop, Rigetti is a $15 billion company, so even if it received a $1 billion investment from JPMorgan (which is extremely unlikely for JPMorgan to spend 10% of its funds on one company), it would only amount to a small stake in the business.

I think this displays how overheated the quantum computing investment market is getting, as we’re still a ways away from quantum computing being adopted at a widespread scale.

Rigetti Computing thinks we’re still years away from a large quantum computing market

Most quantum computing competitors point toward 2030 as the year when quantum computing will start to become a viable technology. Before 2030, Rigetti estimates that the annual value for quantum computing providers is about $1 billion to $2 billion, mostly fueled by government labs and other research institutions. From 2030 to 2040, the market heats up quite a bit, with Rigetti Computing estimating $15 billion to $30 billion.

If we estimate that the market will reach $30 billion in annual value by 2035, Rigetti captures a 90% market share (similar to what Nvidia has done in the AI world), and it can deliver a 50% profit margin (what Nvidia has accomplished), that would give Rigetti $6.75 billion in annual profits. If we apply a 40 times earnings multiple on that, it would indicate Rigetti would be valued as a $270 billion company. That’s more than a 10-bagger from today’s levels, so if Rigetti wins the quantum computing arms race and takes significant market share, there is still plenty of upside left in the stock.

However, there’s likely to be a large market drawdown sometime between now and 2035, and I’ll likely stay patient with investing in quantum computing stocks until then. I wouldn’t be surprised to see this upward trend continue for the stocks, but that means a bubble could be forming. I don’t think it’s a bad idea to trim some of your quantum computing stocks to take a quick win, as it is a good combination of letting your winners run while also being prudent about the rapid rise of these stocks that are still years away from profitability and viability.

With shares up by a jaw-dropping 5,100% over the last 12 months, Rigetti Computing (RGTI -3.01%) exemplifies the life-changing potential of stock investing. If you bought $10,000 worth of shares of this speculative tech company last October, your position would now be worth over half a million dollars.

After a rise of that magnitude, potential new investors must be left wondering if they should jump on Rigetti’s hype train or wait for a dip. Let’s dig into the company’s fundamentals to decide what the near future might bring.

Is quantum computing ready for prime time?

Quantum computing promises to radically expand the reach of digital technology. When it works accurately, it can solve certain types of unusual, but extraordinarily difficult, problems that would take even a classical supercomputer an impossible amount of time. And while the technology has seemed “just around the corner” for decades, some recent breakthroughs have ignited optimism.

For example, one of the chief challenges in developing a useful quantum computer is that they are vastly more prone to errors than classical machines. But late last year, Alphabet subsidiary Google revealed its Willow chip, a state-of-the-art quantum computing chip that does a progressively better job of correcting its own mistakes the more computing power it uses. Perhaps more remarkably, on one of the benchmark computational problems that is used to test the abilities of quantum machines, Willow delivered the answer in about five minutes. For a traditional supercomputer to solve it would have taken 10 septillion years.

If they can be made reliable and cost effective enough to commercialize, such machines could drive revolutionary advances in areas ranging from drug discovery to material science. Quantum computers could also play a role in artificial intelligence by assisting with model training and optimization, which involves finding the most efficient use of resources to achieve a task.

Where does Rigetti fit in?

While Google looks like the leader in quantum computing technology, a rising tide lifts all boats, and investors are pouring capital into the entire industry. Rigetti’s compelling business model has also likely played a role in its explosive rally.

Rigetti takes a comprehensive picks-and-shovels approach to the quantum computing industry. It designs and builds its own chips, called quantum processing units (QPUs), at its California-based foundry. And it created its own programming language called Quil alongside a platform called Quantum Cloud Services (QCS), which is designed to allow clients to access its quantum processing power through the cloud.

The company is in the early stages of commercialization: It recently announced a $5.7 million purchase order for two of its Novera quantum computing systems, which it expects to deliver in 2026. But while these deals are a good sign, investors shouldn’t expect those purchases to necessarily mark the start of mass quantum computing adoption or sustainable growth.

While nonprofit research institutions and early adopters will continue to experiment with quantum computing, analysts at McKinsey and Company believe scalable quantum devices might not be commercially viable before 2040 at the earliest. In the meantime, Rigetti’s financial condition is alarming.

Massive cash burn

Image source: Getty Images.

For better or worse, public companies exist to generate profits for their shareholders. Technological prowess comes second, and arguably doesn’t matter at all if it doesn’t eventually benefit the bottom line. Rigetti’s shareholders may soon have to reckon with this fact.

In the second quarter, its operating losses grew 24% year over year to $19.8 million (compared to revenue of $1.8 million). Meanwhile, the number of shares outstanding jumped by 74% to almost 300 million. Rigetti is still sitting on a mountain of cash from a $350 million stock offering in June. But that money won’t last forever, and investors should expect the company to continue relying on equity financing to fund operations until it can achieve profitability.

With viable quantum computers potentially over a decade away, Rigetti’s management team will likely need to substantially dilute the positions of current shareholders in their efforts to get the company across the finish line. Yet even with this in mind, it’s not too late to buy the stock. If anything, it’s too early. But it may make sense to wait for a correction or another technological breakthrough before you consider opening a position in the stock.

Nvidia (NVDA 0.86%) has been one of the most successful stocks in the artificial intelligence (AI) arms race, rising 1,130% since it began at the start of 2023. This has delivered long-term investors phenomenal returns, but there’s a new, exciting investment trend in town that could disrupt how investors view Nvidia’s success.

Quantum computing is one of the most popular industries to invest in, and its stocks have surged over the past few months as investor sentiment surrounding the industry has improved. One of the most popular options is IonQ (IONQ -3.92%), which is no stranger to success. If you’d invested in IonQ instead of Nvidia at the start of 2023, you’d be up 2,150% (at the time of this writing)!

That may have some investors thinking they’ve backed the wrong horse in the computing race. So, is it time to move on from Nvidia and scoop up shares of IonQ? Let’s find out.

Image source: Getty Images.

Nvidia and IonQ are similar businesses

At their core, Nvidia and IonQ are quite close in terms of business pursuit. Nvidia makes graphics processing units (GPUs) alongside other equipment to optimize their performance. GPUs have become the gold standard in high-performance computing applications such as artificial intelligence, drug discovery, engineering simulations, and cryptocurrency mining. Their unique ability to process multiple calculations in parallel makes them a computing powerhouse, and AI hyperscalers have widely deployed them to train and run generative AI models.

IonQ appears to be a much earlier version of Nvidia, focusing on quantum computing rather than traditional computing methods. It’s developing a full-stack solution that provides clients with everything they need to run a quantum computer. Once quantum computing becomes mainstream, many believe it can have widespread use cases in applications like AI training and logistics network improvements. This could lead to a massive market opportunity, similar to what Nvidia experienced at the start of the AI arms race.

However, we’re still a ways away from quantum computing becoming relevant. IonQ and many other quantum computing companies point toward 2030 as the year when quantum computing will become a commercially viable technology. That’s five years out, and there’s still a lot of time for things to go wrong for IonQ (or go right).

IonQ competitor Rigetti Computing estimates that the annual value for quantum computing providers will reach $15 billion to $30 billion between 2030 and 2040. Should IonQ replicate Nvidia’s success by 2030, it could still have room to grow between now and then.

If we assume that the market reaches $15 billion annually in 2030 and IonQ replicates Nvidia’s dominant 90% market share and 50% profit margin, IonQ would be producing profits of $6.75 billion. At a 40 times earnings valuation, that would indicate IonQ could be a $270 billion company, more than a 10x from today’s $23 billion valuation.

But is that enough to warrant selling Nvidia shares to invest in IonQ?

Nvidia has a growth trend of its own

Over the next few years, capital expenditures relating to AI data centers are set to explode. Nvidia estimates that total capital expenditures in 2025 will total $600 billion, but reach $3 trillion to $4 trillion by 2030. If that plays out like Nvidia projects, the total amount of money spent on data center capital expenditures will rise at a compound annual growth rate of 42%. If Nvidia’s growth directly follows that trajectory, that means its stock could rise nearly 6 times in value.

So, which is more likely: Quantum computing becomes viable, IonQ establishes a dominant, Nvidia-like market share and achieves incredibly high margins, or Nvidia’s growth follows widely accepted AI spending trends? I think it’s more likely that the AI arms race continues in its current form, making holding on to Nvidia shares a smart decision. After all of the quantum computing investment hype, I think it’s time for investors to take a break from this sector and focus on some companies that have actual money flowing into them, rather than quantum computing-specific businesses like IonQ.

Quantum computing stocks have been on an absolute tear recently as their companies announced major contract wins. But that was all topped off by JPMorgan Chase‘s announcement this week that it’s investing $10 billion into strategic tech companies. That includes quantum computing businesses. But for quantum computing stocks to rise around 20% (some more, some less) following that news is troublesome.

No specific investment was announced in any of these companies, and other massive industries were listed in the release — such as supply chain and advanced manufacturing, defense and aerospace, energy technology, and frontier and strategic technologies (where quantum computing was lumped in). This raises concerns about the short-term nature of the quantum computing market. The combined rise of all quantum computing stocks was more than the overall $10 billion investment announced by JPMorgan Chase, so there’s clearly not enough to go around.

Observers have begun to speculate that there may be a quantum computing bubble forming. So is now the time to sell? I think Warren Buffett has some great advice for investors on what they should do.

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Warren Buffett has seen a bubble or two in his career

Warren Buffett is the legendary CEO of Berkshire Hathaway, a position he has held since he took control of the company in 1965. Over the years, Buffett has given investors several great pieces of wisdom, and I think one quote is applicable right now. He wrote that his goal was to “attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

There are clearly many signs of greed in the quantum computing market. As mentioned above, many of the quantum computing stocks rose by a massive amount in response to a nonspecific announcement that JPMorgan Chase would invest in emerging technologies.

Furthermore, we’re still years away from quantum computing viability. Most competitors point toward 2030 as the likely turning point in quantum computing’s commercial relevance, and that’s still five years away. Five years ago, we were in the beginning stages of the COVID-19 pandemic, and nobody (outside of a handful of companies) had ever heard the term generative AI. It’s impossible to know what will happen in the field over the next five years, or which companies will be the winners.

Most of the investment dollars flowing into the quantum computing space have centered around the pure plays. Still, there are also legacy tech players, like Alphabet, Microsoft, and IBM, which have nearly unlimited resources compared to pure plays like IonQ (IONQ -3.92%) or Rigetti Computing (RGTI -3.01%). It’s still an uphill battle for IonQ and Rigetti, and just because the big tech players aren’t saying anything doesn’t mean they aren’t experiencing success.

Companies like IonQ and Rigetti Computing are still years away from profits, and have to rely on government contracts and stock issuance to continue to fund their operations. As a result, they must issue a news release on any piece of positive news they can to let investors know about their successes. The big tech companies like Alphabet, IBM, and Microsoft can afford to stay silent about any breakthroughs, as they’re internally funding their research.

The big tech players may be far more advanced than the pure plays, even if nobody outside of those companies knows it yet. I think this could be setting up some of the pure-play stocks for failure, and their shareholders should take action.

Taking some profits in an increasingly frothy industry is a smart move

Another Warren Buffett quote is applicable in this situation, too: “The first rule in investment is ‘Don’t lose.’ And the second rule in investment is ‘Don’t forget the first rule.'” Investors have already made a significant amount of money on the quantum computing trade, and while it’s possible these stocks could continue rising, a crash may be around the corner.

If you’ve invested in these stocks at any time this year, it may be time to at least trim some of them, as it’s unlikely that they’ll continue rising forever. By taking some profits now, you can be well positioned to deploy them back into the industry if it returns to earth.

Nobody ever lost money by selling a stock at a profit, although they have lost out on even larger returns. Still, I think the risk is greater than the reward, and it may be a wise time to take some profits off the table.

Quantum computing is becoming a popular investment theme in the market, but there’s just one problem: It’s still a few years away from commercial relevance. This makes it nearly impossible to predict which company will be a major winner in this field. Adding to the difficulty of quantum computing investing is that the technology is incredibly complicated and can be difficult to understand. However, not investing in quantum computing could be a massive mistake for your portfolio’s future returns.

So, what should investors do? One advantage investors can get in this investment sector is looking at which competitors have strong backers. Amazon (AMZN -0.61%) is one tech giant that is investing in this space and is backing one of the leading pure plays: IonQ (IONQ -3.92%). This gives IonQ a vote of confidence from one of the biggest companies in the world, making IonQ an intriguing stock to invest in.

Amazon owns a small amount of IonQ

We know that Amazon is investing in IonQ from its Form 13F, which informs investors what other stock holdings Amazon has because its investment portfolio is greater than $100 million. As of its last report filed for Q2 holdings, Amazon holds nine stocks, with IonQ being one of them.

Amazon holds just over 850,000 shares of IonQ. While that may sound like a lot, that’s only about 0.3% of IonQ’s total shares outstanding. So, Amazon isn’t a controlling party in IonQ; it’s just an investor like you and me (although it has a lot more capital than you and me).

Just because Amazon doesn’t own 10% or so of the company doesn’t mean this isn’t an insignificant investment. Amazon clearly likes what it saw, and with Amazon having more technical prowess than the average investor, I think this makes IonQ an intriguing quantum computing investment.

One thing that sets IonQ apart from its competitors is the path it’s taking. While most quantum computing players are using superconducting technology, which requires cooling a particle to nearly absolute zero, IonQ uses a trapped-ion approach, which can be performed at room temperature. Furthermore, the trapped-ion technique is inherently more accurate than superconducting, which is a trade-off for slower processing speeds.

Because the biggest hurdle in quantum computing technology is accuracy, I think IonQ is one of the more compelling investment options right now, as it is the leader in this category, holding two world records.

This makes IonQ my top option in the quantum computing investment world. But is the stock worth buying right now?

An investment in IonQ will be volatile

IonQ has had an incredible run over the past few months as quantum computing investing has risen in popularity. The stock is up around 90% since the start of September, which is a massive movement considering that we’re still years away from viable quantum computing technology.

Most companies in this realm point toward 2030 as the turning point for quantum computing adoption, and IonQ is no different. Earlier this year, IonQ’s CEO Peter Chapman gave investors the projection that the company will be profitable with sales approaching $1 billion by 2030. That’s still five years away, which is a long time to wait and hold the stock to see if IonQ is an eventual winner in the quantum computing arms race.

With how much attention quantum computing has gotten in recent weeks, it’s impossible to tell where the stocks involved in this sector will head. It’s possible that there is a quantum computing investing mania ongoing, and the stocks continue to rise at an irrational pace.

It’s also possible that the stock could be ripe for a sell-off, especially after the past few weeks of strong gains. However, as long-term investors, we need to avoid that noise. If you’re buying IonQ stock now, you need to have the mindset of buying and holding through at least 2030, regardless of what the roller coaster ride of the stock market is like.

If you’re confident in IonQ, buying today makes sense, but your measure of success cannot be the stock price; it must be the company’s announcements. If IonQ wins the quantum computing arms race, the stock will be a winner over the long term, but keep in mind that it will be incredibly volatile along the way.

Quantum computing investing is not an easy field to pick stocks in. There’s a lot of complex knowledge needed to understand the technology, making it hard for investors to discern which company is currently leading the way. Furthermore, the space is rapidly shifting, with new announcements occurring every week that change the landscape.

This makes it difficult to be a quantum computing investor, but I think there is a way to spread out the risk a bit and still have exposure to this important and emerging space. By taking a basket approach and picking a few stocks, investors can increase their odds of success by sacrificing maximum return for a better chance of success. I think this is the best way to approach quantum computing, and I’ve got five picks that help make up a quantum computing basket.

Image source: Getty Images.

Quantum computing pure plays

First, let’s look at some pure plays in this space. These companies are the most exciting, as they’re relatively small but have the chance to turn into giant tech companies if their technology is successful.

First is IonQ (IONQ -5.85%). It was the first quantum computing pure play company to go public, and has seen tremendous success over the past year. It’s taking a unique approach to the quantum computing realm, utilizing a trapped-ion technology versus the more popular superconducting option.

A trapped-ion quantum computer is inherently more accurate, but trades off processing speed. Still, with quantum computing accuracy being the biggest problem surrounding widespread commercial adoption, investing in a company whose technology is a leader in solving this problem is a wise idea.

Next is Rigetti Computing (RGTI 0.39%). Rigetti is deploying the superconducting quantum computing approach and has seen some recent successes with it. On Sept. 30, Rigetti announced the sale of two quantum computing systems that totaled $5.7 million.

While that’s not the billion-dollar enterprise many investors picture this technology having, it’s a start. Furthermore, because these customers likely explored other quantum computing options available, it’s a big deal that they decided to pick Rigetti over some others.

Last on the pure play list is D-Wave Quantum (QBTS 4.13%). D-Wave Quantum is taking a completely different approach to quantum computing than IonQ or Rigetti. It’s developing a quantum annealing computer, which can’t be used for general-purpose computing like the other two options. Instead, quantum annealing focuses on solving optimization problems, which is incredibly useful for weather patterns, logistics networks, and artificial intelligence (AI) training.

If D-Wave can develop a winning option with this approach, it could dominate the fields that are recognized as having the most value for quantum computing.

Legacy tech players

Next are some legacy tech players competing in the quantum computing space. While these options don’t have nearly the upside of the pure plays, they’re also less risky. If IonQ, D-Wave, or Rigetti fail to produce a commercially viable product, it’s likely that their stock will go to zero. For Alphabet (GOOG 2.17%) (GOOGL 2.23%) and Nvidia (NVDA -0.17%), they have other primary businesses that will ensure their viability for years to come.

Alphabet is seen as a leader in quantum computing from the big tech standpoint. It’s developing quantum computing for internal use, but also to be rented out via its cloud computing service, Google Cloud. If Alphabet can develop its own quantum computer in-house, it can increase its margins in this area, as it won’t have to pay for other companies’ profits, as it does when it buys Nvidia’s graphics processing units (GPUs) now. Alphabet has resources that the pure play companies can only dream about, and in a trend that needs heavy capital influx to develop the product, Alphabet could be a huge winner.

Last is Nvidia. Nvidia currently produces the most powerful classical computing units available, and has no plans to develop a quantum computing option. However, Nvidia sees that the real value in quantum computing will be a hybrid approach that uses its GPUs alongside a quantum computing unit. To ensure its hardware is used in this hybrid approach, Nvidia is evolving its leading software, CUDA, for quantum computing, renaming it CUDA-Q.

CUDA software is a primary reason why Nvidia has been so successful in the AI arms race so far, and by offering a quantum computing alternative, it will ensure that its computing products will be used for years to come, even if quantum computing takes the world by storm.

With shares up 2,500% over the last 12 months, Quantum Computing (QUBT 1.49%) is sure to attract the attention of growth-focused investors. The stock is surging based on industrywide optimism. But is this rally driven by fundamentals or hype? Let’s dig deeper into the pros and cons of Quantum Computing, also known as QCi, to decide if the shares are a solid long-term buy.

What is special about quantum computing?

Quantum computing is a branch of computer science and physics that aims to create devices capable of solving the world’s most difficult problems exponentially faster than today’s fastest supercomputers. And we aren’t talking 30 minutes faster; we are talking over a million years faster. If the technology works, it will allow humans to do things that were previously impossible with current technology.

It doesn’t take a supercomputer to see the vast commercial opportunities that viable quantum computers could unlock. Analysts expect them to help rapidly discover new pharmaceutical drug candidates and chemical structures, and even help train artificial intelligence (AI) models.

Quantum Computing (QCi) aims to position itself on the picks-and-shovels side of this opportunity, supplying hardware products like chips, sensors, and communication devices. It also claims to have the first of its kind foundry for processing thin-film lithium niobate (TFLN), a next-generation material useful for advanced telecommunication platforms.

QCi’s TFLN foundry is located in Tempe, Arizona, and its made-in-America approach could attract government support amid the accelerating technology arms race between the U.S. and China.

But what about the fundamentals?

While cutting-edge technologies often sound exciting, it is essential to remember that they won’t always translate to commercial success, especially in the near term. Furthermore, the start-ups with the most valuable patents and processes are often acquired by larger companies or kept private to maximize returns for their owners. So when small speculative companies like QCi go public, it’s important to ask why.

Image source: Getty Images.

The company’s second-quarter earnings report gives some clues about the pressure it is under. Revenue collapsed 67% year over year to just $61,000 (that’s less than the median annual salary of a U.S. tech worker). Meanwhile, operating costs are spiraling out of control, with research and development more than doubling to $5.98 million.

As a speculative tech company, QCi probably can’t trim its research and development outflows too much without risking falling behind other players in the industry. And it is important to note that quantum computing is shaping up to be a competitive arena, with tech giants like Alphabet and Nvidia also aiming to establish themselves in the picks-and-shovels niche. These larger, well-capitalized companies will be able to spend more on research and leverage larger supply chains.

Is Quantum Computing a millionaire-maker stock?

QCi is clearly under a lot of pressure because of its minuscule revenue, heavy losses, and the pressure to keep up its research spending. By going public, management now has the ability to raise more money by creating and selling more units of its own stock. While this strategy keeps the business afloat, it can hurt existing shareholders by diluting their ownership stake in the company and their claim on its future profits.

In August, QCi announced a $500 million share offering, which increased its share count by a jaw-dropping 26.9 million. And the company already has 159,883,187 shares outstanding as of the second quarter. Expect this number to continue expanding over time.

While QCi could potentially be a millionaire-maker stock in the right conditions, the risks far outweigh the rewards right now. And fundamentals-focused investors should look for better opportunities.