The artificial intelligence (AI) trend may be at the forefront of most investors’ minds, but there’s another big tech trend on the horizon: quantum computing. While commercially relevant quantum computing isn’t expected to arrive until 2030 at the earliest, by then most of the gains to be made from quantum computing stocks will already be in the books.
A popular choice in this space is D-Wave Quantum(NYSE: QBTS)as it is a pure piece fighting for a massive market share. But is it the best quantum computing stock to invest in right now?
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Most quantum computing companies are trying to create general-purpose quantum computing units that can be used in essentially many of the same scenarios that a classical supercomputer would be used in. This is obviously the biggest market opportunity, but it is more difficult than creating a more specialized unit that is suitable for solving a narrower range of problems.
D-Wave takes the latter approach. Its quantum computer is built around a technology called quantum annealing, which identifies some of the lowest energy states of a system. In a computational context, those states represent optimal or near-optimal responses.
Fortunately for D-Wave, many of the potential use cases already identified for quantum computers are optimization problems—among them, weather modeling, logistic networks, AI inference and training, and statistics. An unnamed Fortune 100 company recently entered into a $10 million, two-year contract with D-Wave to explore its quantum computing capabilities. If this relationship comes to fruition, it could lead to a much larger business.
The commercial relevance is starting to emerge, but does that make the D-Wave Quantum the best way to play this trend?
It is impossible to say which companies will offer the best solutions in quantum computing. The eventual leader may even be one that is not yet traded on the public markets. The reality is that many pure pieces will not deliver, and D-Wave could be one of them. Additionally, there are numerous giant tech companies with massive resources at their disposal competing in this space as well. D-Wave’s more specialized approach could be the factor that allows it to thrive, or it could just position it to be beaten by the competition.
McKinsey & Company projects that quantum computing could be a $72 billion annual market by 2035. If D-Wave can capture much of that market, it’s now a no-brainer with a market cap of about $6.8 billion. However, there is no guarantee that its technology will take off, much less that it will be able to amass a major market share. Even if it produces commercially viable quantum computers, so could other competitors. Even if D-Wave turns out to be a technological success, its stock may not rise much if its bottom line results are insufficient to justify the level of optimism already instilled in the stock. The level of competition that could result from multiple winners in this field could certainly affect their margins. Meanwhile, quantum computing is still far from commercial relevance and there are a lot of unknowns.
That said, I think investors are still OK to invest in D-Wave; they should just be aware of the risks. It’s a long-term investment, but based on the size of its potential addressable market, the stock could still produce huge gains if the company’s efforts pan out. I like D-Wave’s specialized approach because it means it’s not exactly competing on the same playing field as many of its better-funded rivals. D-Wave is a solid option for those interested in an investment in quantum computing, but investors should keep position sizing small to mitigate their risk.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
A once-in-a-generation investment opportunity: Is D-Wave Quantum the best way to play this monstrous trend? was originally published by The Motley Fool
