Today’s small-cap quantum computing specialists could grow exponentially as their technology is commercialized.
These companies burn a lot of cash and have astronomical valuations, making them extremely risky investments.
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The artificial intelligence (AI) trend has once again demonstrated how much investors can earn by monitoring the latest technology trends. While AI is hot right now, investing in quantum computing stocks can produce similar long-term gains.
Quantum computing is a new technology that could become Wall Street’s next favorite thing in a few years. This technology aims to solve certain types of highly complex problems that classical computers cannot do. In theory, quantum computers will be able to simulate molecules to speed up drug discovery, help companies make better decisions, and speed up AI training.
Some people believe that investing in quant stocks now can turn them into millionaires. The industry is full of potential, but there are some risks to consider, especially if you’re thinking of making $5 million in quant stocks over the next decade.
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Investors looking for stocks with the potential for major multibagger returns often start by looking at companies with smaller market caps. That’s understandable. On an absolute basis, it takes far less growth in sales and earnings to justify growing a $1 billion company to a $2 billion valuation than it does to turn a $1 trillion company into a $2 trillion company.
IonQ(NYSE: IONQ) has a market capitalization of less than $20 billion, while Give up the calculation(NASDAQ: RGTI) and D-Wave Quantum(NYSE: QBTS) are valued at less than $10 billion.
A handful of companies that are major players in the AI space currently have market caps of more than $1 trillion, and many more are worth more than $100 billion. If pure-play quantum computing stocks can achieve similar results, a portfolio of those stocks could potentially generate $5 million in earnings over the next 10 years, depending on how much you invest.
However, this is a big “if”. Quantum computing is still an early-stage technology, and the companies involved generate little revenue. For example, IonQ has a market cap of $16 billion, but has guided for a top line of $106 million to $110 million in 2025. That gives it an extremely high price-to-sales ratio of 145. Meanwhile, it expects to report a loss of $206 million to $216 million for the year. It will need to perform perfectly from here for many years just to justify its current rating. Rigetti and D-Wave also have multibillion-dollar valuations, but bring in only a few million dollars in revenue per quarter. Their current valuations are entirely speculative.
Not only do these companies have high price-to-sales valuations, but all three are burning through cash. IonQ reported a net loss of $1.05 billion in Q3 and just under $40 million in revenue. The other pure games follow a similar pattern of net losses far exceeding revenue. For now, it relies on money raised from equity offerings just to stay in business, as well as investor faith in the promise of quantum computing.
At some point, quantum computing technology appears to be reaching a level of maturity where it is both useful and commercially viable. That would give some of these growth stocks some fundamental value that goes beyond the hype. However, not every pure game of quantum computing is guaranteed to be a winner. Investing in a quantum computing ETF can give you exposure to the entire sector, so some of your money allocated to any one company will end up a winner.
Among these pure plays, heavy cash burn will likely continue for at least a few more years before these companies start turning a profit. Significant commercialization of the technology is still several years away. Optimistic forecasts suggest that quantum computing could be commercialized in 2030, but it could take longer before it is finally viable.
The longer it takes for quantum computing to be commercialized, the more likely it is that well-established tech companies with much deeper pockets will develop their own versions of the technology, reducing the market share available for pure play.
At this point, investors shouldn’t rush into quantum computing stocks. Yes, these stocks could go up and down the generations once their technology is commercialized. However, it could take several years for that to happen, and in the meantime, those pure games will continue to eat money. Moreover, at their current levels, their share prices already have highly optimistic future results built into them for many years.
AI companies are making money right now. Not only do investors put capital into the industry, but the companies involved generate tangible revenue and earnings growth.
Investors who believe in the long-term potential of quantum computing could be right and still lose money by buying these stocks at the wrong time. Investors should monitor developments in quantum computing and keep an eye on top contenders. It is too early to guess who the winners will be.
Current conditions in this sector are reminiscent of how things were in the space exploration industry in 2021.
Many bullish investors flocked Virgin Galactic and other space stocks like AST SpaceMobile and RocketLab. Those stocks did well in 2021, but crashed sharply the following year.
Those early investors were eventually proven right about the long-term potential of AST SpaceMobile and RocketLab, but not all investors who bought shares in 2021 actually weathered the crash to benefit from the eventual recovery. And Virgin Galactic never came back. It is down over 99% from its peak.
Quantum computing stocks may face a similar situation where they crash at least one more time and stay low for a bit before becoming compelling buying opportunities. IonQ has had several crashes of more than 50% over the past five years, and two of those 50% drops occurred in 2025. The stock is now down about 40% from its all-time high.
Quantum computing technology may be groundbreaking, but pure-play stocks in the space are highly speculative. For now, it might be better to invest in other opportunities and wait for a better time to jump into quantum computing.
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Marc Guberti has no position in any of the actions mentioned. The Motley Fool has positions in and recommends IonQ and Rocket Lab. The Motley Fool has a disclosure policy.
Can Pure-Play Quantum Stock Really Make You $5 Million in 10 Years? was originally published by The Motley Fool
