Recent breakthroughs in artificial intelligence (AI) have powered massive returns for investors who bought into the biggest beneficiaries early. AI spending has propelled the entire stock market higher as investors expect it to unlock a ton of economic value. But the biggest winners of the current trend in artificial intelligence so far have been chipmakers like Nvidia.
The next big breakthrough in technology could be quantum computing. Quantum chips use the principles of quantum mechanics to process information and solve certain types of problems at much faster speeds than a traditional computer.
There are several publicly traded companies working to develop quantum chips. The challenge many face is scaling their designs to the point where they can solve real-world problems without producing so many errors along the way that their calculations completely fall apart. While many expect quantum chips to eventually help provide breakthroughs in drug development, cybersecurity, and machine learning, many believe the technology is still years, if not decades, away from that point.
That’s why if I’m going to invest in a single quantum computing stock, it should be one that I know will still be around 10 or 20 years from now.
Image source: Getty Images.
Most of the pure-play quantum computing companies have very little revenue without broadly applicable commercial products to sell to customers.
IonQ(NYSE: IONQ) is the biggest of the pure plays with a market cap of around $6.9 billion as of this writing and it generated all of $37.5 million over the last 12 months. That stems from researchers studying quantum systems using its technology. Smaller companies Quantum Computing(NASDAQ: QUBT) and Rigetti Computing(NASDAQ: RGTI) had revenue of just $386,000 and $11.9 million, respectively, over the last 12 months.
Without significant sources of revenue, all three are burning significant amounts of cash developing their technology. IonQ’s operations resulted in a cash burn of $92.9 million over the trailing 12 months. Rigetti burned $54.5 million and Quantum Computing dropped $17.4 million in cash on its operations.
That puts them in precarious positions, where they need to raise cash to continue their research. But a failure to show results jeopardizes their ability to raise cash. One disappointing development and they could find themselves closer to the end of their cash runways than expected.
So, a company that can self-fund its quantum computing research and development is a much safer bet. On top of that, if a bigger business does develop an advanced quantum chip, it already has the resources to scale production. What’s more, a company with additional business ventures outside of quantum computing likely has multiple ways to monetize quantum chips outside of selling them to cloud platforms to rent out to researchers and developers.
That’s why the quantum computing stock that I’d prefer to own above all others is Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL). It certainly doesn’t have the upside potential of the smaller pure-play stocks to increase in value, but it’s most likely to be able to spend the money necessary to advance its research to the point where it develops a useful quantum chip. And it has the resources to take advantage of that quantum chip if and when it produces it.
Alphabet is responsible for a recent breakthrough in the design of quantum chips. Its Willow chip, introduced in December, solved a benchmark calculation in five minutes that researchers estimate would’ve taken a classical super computer 10 septillion years, an amount of time exceeding the age of the universe.
Willow’s big breakthrough was in cutting the error rate down through redundancies in the system as it scales up the number of qubits in the chip. This solves a key challenge in developing an error correction system that scales. As a result, Willow is able to use 105 qubits. Alphabet will need to scale that number by multiple orders of magnitude before it has practical applications. Willow, while a scientific breakthrough, is just a small milestone in the company’s research and development.
However, Alphabet has shown a willingness to dedicate resources to developing quantum chips. And it certainly has plenty of resources. The company generated $73 billion in free cash flow in 2024. As mentioned, the leading pure-play quantum computing companies are burning less than $100 million per year on their businesses. That’s just a rounding error for Alphabet.
Alphabet has a lot of ways it can use quantum computing within its own business, which makes its investment in developing new chips well worth it for investors.
The most obvious way is to set up racks of its quantum chips in its Google Cloud data centers and rent out their computing capabilities to customers. This is how companies like IonQ currently generate revenue. There just isn’t much demand for quantum chips right now as their applications are limited.
Alphabet is also a leader in artificial intelligence development. AI can significantly benefit from access to quantum computing’s processing power to speed up training or provide new training data for AI models to become more robust.
Alphabet also operates several “other bets” focused on life sciences and drug discovery. Quantum computing has the potential to rapidly accelerate the discovery of chemical compounds, including new medicines or materials.
Alphabet has a lot of ways to capitalize on developing its own chip, and the amount it has to invest to compete in the market is relatively small compared to the overall size of its business. Investors looking to buy just one quantum computing stock would be smart to buy shares today. With the stock trading for just 20 times analysts’ estimate for 2025 earnings, the upside potential is still relatively high.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
If I Could Only Buy 1 Quantum Computing Stock, This Would Be It was originally published by The Motley Fool
As a journalist, Lauri Blackwell has always been interested in writing about the business world. She aims to keep her readers up-to-date on current events and trends in the business world, without sacrificing the journalistic integrity that made her want to be a writer in the first place.
