Quantum Computing: The Next AI Boom?

Quantum computing stocks surged last week after the US government announced $2 billion in grants to nine quantum computing companies in exchange for minority equity stakes.

International Business Machines (IBM) is set to receive $1 billion in funding, and its shares jumped more than 12%. An early leader in the race, IBM also announced plans to build Anderson, America’s first purpose-built quantum foundry.

GlobalFoundries (GFS), which will receive $375 million in funding, surged 15%. The company is also launching a new quantum-focused business. Smaller publicly traded quantum companies such as D-Wave Quantum (QBTS) and Rigetti Computing (RGTI), which are expected to receive about $100 million each, rose 30% or more.

The funding, which will come through the CHIPS and Science Act, underscores the importance governments around the world are placing on this nascent but potentially transformative technology.

Last month, many quantum stocks also skyrocketed after NVIDIA (NVDA) released open-source AI models designed to support quantum computing research. “AI is essential to making quantum computing practical,” CEO Jensen Huang said.

According to McKinsey, quantum computing could create up to $2.7 trillion in economic value globally by 2035, with major impacts expected across pharmaceuticals, chemicals, finance, and logistics.

What Is Quantum Computing?

Scientists have been theorizing about and developing quantum computers for more than four decades. Recent breakthroughs have raised hopes that this futuristic technology may be closer to reality than previously believed.

The excitement intensified when Google (GOOG) unveiled its new chip, Willow, which can perform calculations in under five minutes that would take one of the world’s most powerful supercomputers virtually forever to complete.

Unlike traditional computers, which use binary digits, or bits, that can represent either 0 or 1, quantum computers use quantum bits, or qubits.

Thanks to the unique properties of qubits, quantum computers can process certain types of information exponentially faster than conventional machines. However, qubits are extremely fragile and must be maintained at ultra-cold temperatures.

Experts estimate that millions of qubits will ultimately be needed for quantum computers to run commercially useful programs effectively.

Because of these challenges, commercially viable quantum computing is still years away. But recent advances suggest the timeline could be shorter than previously expected, perhaps years rather than decades.

How Should You Invest in the Theme?

Some of the world’s largest technology companies, including Microsoft (MSFT), NVIDIA, Amazon (AMZN), and IBM, along with a growing number of startups, are actively developing quantum computers and related technologies. Governments worldwide are also investing billions into the field.

Until last year, there were only four publicly traded pure-play quantum companies. Since then, three more have made their public debut, and many more are reportedly planning listings in the near future, according to The Wall Street Journal.

Smaller pure-play quantum stocks are usually very volatile and trade heavily on headlines. Because it is still too early to identify the long-term winners, a diversified approach through ETFs may make more sense for most investors.

To learn about the Defiance Quantum ETF (QTUM), Global X AI Semiconductor & Quantum ETF (CHPX), and WisdomTree Quantum Computing Fund (WQTM), please watch the short video above.

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This article originally published on Zacks Investment Research (zacks.com).

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