Quantum Computing Stocks: Why Are They So Hot Right Now?
TradingKey - The market narrative for investors in 2024 has been focused on two words; Artificial Intelligence (AI). That focus on AI has been what’s driven the S&P 500 Index’s broader gain throughout the year, particularly when it comes to giants like Nvidia Corporation (NASDAQ: NVDA).
However, more recently, there has been another emerging technology that is grabbing investors’ attention and that’s “quantum computing”. But what exactly is quantum computing?
Effectively, it’s a nascent field of computing where computer science uses quantum mechanics to solve ultra-complex problems in a fraction of the time of classic computers. For context, quantum computers can be put to work to solve problems that baffle normal researchers.
These include things like modelling proteins for new drug discovery or even portfolio optimisation so that investors can find the best portfolio allocation to maximise returns. The key thing to remember here, though, is that quantum computing is still in its very early stages.
So, why is the market so hot right now on these stocks and what should investors be aware of?
Alphabet’s new chip raises quantum computing profile
When it comes to new technologies, it usually requires a “breakthrough” moment for investors to take notice. In quantum computing’s case, that breakthrough came courtesy of tech giant Alphabet Holdings Inc (NASDAQ: GOOGL) – which unveiled a new quantum computing chip named “Willow”.
It did this in early December and the day after the announcement, Alphabet shares jumped 6%. The company highlighted Willow as a significant better performed than a quantum computing predecessor it developed in 2019.
The main point for investors is that Alphabet’s new chip can reduce errors faster than they crop up as quantum chips get bigger. That had been a key bottleneck in the advancement of quantum computers. With this “error rate” now being reduced by a large multiple.
Alphabet CEO Sundar Pichai commented that “we see Willow as an important step in our journey to build a useful quantum computer with practical applications in areas like drug discovery, fusion energy, battery design and more”.
Quantum computing hype
Since that announcement, there have been a flurry of quantum computing stocks that have been thrown into the spotlight. Some more recognisable names in the quantum computing space include the likes of Quantum Computing Inc (NASDAQ: QUBT), Rigetti Computing Inc (NASDAQ: RGTI), and D-Wave Quantum Inc (NASDAQ: QBTS).
These stocks are up 136%, 298%, and 182%, respectively, in the past month. On a year-to-date basis, these companies are up 1,000% to 2,000%.
But what about in the ETF space? There’s actually one quantum computing ETF that is dominating and it’s the Defiance Quantum ETF (NASDAQ: QTUM). This could be a more conservative way to play the rise of quantum computing.
However, its shares are “only” up around 54% so far in 2024. That’s mainly down to the fact that it has 71 holdings and no one company makes up more than 2.2% of the ETF.
Companies like D-Wave Quantum and Rigetti Computing are among its top holdings but there’s also large-cap companies like Palantir Technologies (NASDQ: PLTR) and Mediatek Inc (TPE: 2454), a Taiwanese chip firm, also in the top 10 holdings.
What to watch in 2025
For quantum computing investors, it may appear like there is a lot of hype and froth in the market. That’s certainly true to a degree. However, there is also excitement in the general space of quantum computing given its various applications in the real world.
For investors, it appears like the “Big Tech” names like Alphabet will have the spending power to outpace smaller companies so for more conservative investors, betting on the development of quantum computing is likely to mean investing in the more established tech firms.
For those of us who do want to try to guess the next big “winner” from quantum computing could look to invest in one of the smaller names but at this point, it’s incredibly hard to forecast which company will come out on top.
