Quantum Computing Stocks Surge Amid Retail Investor Hype

A Remarkable Upsurge in Quantum Computing Stocks

In recent months, a surge of interest in quantum computing stocks has taken the market by storm, particularly as retail investors gravitate toward what they perceive could be the “next big thing” in technology. Three small-cap companies—Rigetti Computing Inc. (RGTI), D-Wave Quantum Inc. (QBTS), and IonQ Inc. (IONQ)—have all reported staggering gains. According to FactSet data, their stock prices have skyrocketed by 843%, 455%, and 398%, respectively, over a three-month period ending on Tuesday.

Additionally, the Defiance Quantum ETF (QTUM), which targets both established and emerging companies involved in quantum computing and machine learning, has experienced an increase of more than 30% during the same timeframe. Although these stock price surges translate into only a few billion dollars’ worth of value creation for shareholders, the continuous flow of new developments within the industry, accompanied by robust market performance, has undoubtedly fueled investor interest.

Market Reactions to Recent Developments

The latest catalyst for this market movement came just before the close of trading on Monday when Alphabet Inc.’s (GOOGL) Google Quantum AI unit released what industry experts have termed a potential breakthrough in the quantum computing landscape that could significantly accelerate the pathway to commercially viable products. Following this announcement, shares of Rigetti, D-Wave Quantum, and IonQ briefly rallied on Tuesday; however, only Rigetti managed to retain its gains by the end of that trading day, while stocks from both IonQ and D-Wave Quantum saw declines on Wednesday.

This recent stock surge occurs in stark contrast to a prior downturn following the burst of the SPAC (Special Purpose Acquisition Company) bubble, which had left shareholders reeling from significant losses. Both D-Wave and Rigetti continue to trade significantly below their peaks from 2020 and 2021.

The Retail Investor Phenomenon

Increasing conversations among users on platforms like Reddit have served to amplify excitement about quantum computing, with many community members sharing their inquiries, ambitions, and apprehensions regarding this cutting-edge technology. According to Steve Sosnick, chief strategist at Interactive Brokers, the market’s enthusiasm for speculative technology is well-documented, and quantum computing is emerging as a new focal point. “This market loves a sexy technology theme; we certainly know that’s the case with AI. It wouldn’t surprise me in the least if people move on to quantum computing,” Sosnick stated.

Despite growing excitement, it is essential for investors to remain grounded in the reality of the quantum computing landscape. Unlike AI, where advancements can yield immediate applications, the realm of quantum technology is still several years away from producing manifestations of commercially viable products.

A Speculative Investment Landscape

The prevalent speculation surrounding quantum computing stocks remains heightened. Daniel O’Regan, managing director at Mizuho Securities USA, remarked that the current trend seems to be a case of “hype on hype,” given that none of these companies have yet reported revenue. For instance, IonQ, considered the most sophisticated of the trio, is expected to generate just $41.4 million in sales for the 2024 calendar year, while Rigetti and D-Wave Quantum project sales of $16.2 million and $9.1 million, respectively.

Market capitalization and projected sales figures underscore the speculative nature of these investments:

• Rigetti Computing: Market Cap: $1.6 billion, Projected 2024 Sales: $16.2 million
• D-Wave Quantum: Market Cap: $1.4 billion, Projected 2024 Sales: $9.1 million
• IonQ: Market Cap: $7.1 billion, Projected 2024 Sales: $41.4 million

Competition poses a formidable barrier as larger companies, such as Alphabet and IBM Corp. (IBM), have heavily invested in their quantum computing initiatives. O’Regan suggests that this competitive landscape may result in acquisition offers for one or more of these smaller companies.

Recent Breakthroughs Fueling Interest

The spotlight on quantum technology further intensified last month when Amazon Web Services unveiled a new advisory service focused on quantum computing. Following closely behind, Google’s recent announcement showcased significant advancements involving their quantum-computing chip, Willow, in a published article in the scientific journal *Nature*. The research demonstrated that Willow performed a computation that would have taken classical supercomputers an unfathomable span of 10 septillion years to complete while achieving a new level of error control—a long-sought goal in quantum computing.

Explaining the significance of Google’s innovation in error correction, William Oliver, a professor at the Massachusetts Institute of Technology, remarked, “This is exactly what we need to have happen if we’re going to commercialize quantum technology.”

Future Outlook and Implications

As retail investors weigh the advantages and disadvantages of quantum computing stocks, questions persist regarding the future implications of this technology. In particular, concerns about its potential to disrupt established encryption practices—critical for securing cryptocurrencies—have gained traction. While experts like Oliver recognize the risk of quantum computing undermining traditional encryption methods, he cautions that such capabilities are likely still a decade away.

In conclusion, while the quantum computing sector is generating buzz and speculation among retail investors, potential profitability remains uncertain. With industry giants positioning themselves in the quantum space, the landscape is set for further evolution, even as smaller companies like Rigetti, D-Wave, and IonQ navigate a path fraught with challenges and competition.