Quantum computing stocks are the new AI stocks
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AI stocks led markets to record heights in 2024, but some investors are already moving on to the new hotness: quantum computing.
Why it matters: Investors who tripled or quadrupled their money on AI plays are hungry for the next big thing, even if quantum computing is still relatively nascent in comparison.
Context: Quantum computing is bleeding-edge stuff, applying the principles of quantum mechanics to perform computing tasks far too difficult for traditional computing.
- As MIT scientists describe it, traditional binary computers use electrical signals that can be either 0 or 1. Quantum computing uses subatomic particles that can be both simultaneously. It sounds like a small difference but the power is exponential.
- Google said last month its new quantum computing chip, code named Willow, did computations in five minutes that would take today's supercomputers 10 septillion years.
- Google found a solution for a fundamental problem with error correction that quantum computing researchers have been working toward for decades.
Yes, but: The technology is still in its infancy. As Google itself points out, Willow's achievement is little more than a "convincing prototype" that offers a "strong sign" quantum systems can be built at scale.
Eager investors are nonetheless snapping up shares of small-cap stocks as hype builds around this next generation of technology.
- Rigetti Computing has nearly quadrupled (off a low base) since the Willow announcement, turning it into a nearly $5 billion company.
- Quantum Computing has more than doubled, and larger player IonQ is up more than 10%.
Reality check: Retail investors are notorious for clamoring into stocks that look hot without really knowing why.
- Momentum trading means that quickly rising names will often go up just because they're going up, until some event happens that causes investors to abruptly take profits.
- Rigetti, for example, has about $12 million a year in revenue, meaning that it currently trades for over 400 times its sales, an astronomical valuation for any company.
- It's also been a stock in the doldrums for years, since coming public via a SPAC merger in early 2022. In fact, it didn't get back to its initial price until this recent surge.
💠Felix's thought bubble: Just about anything anybody ever gets excited about is now investible. Every so often a stock (or sector) will take the place of a memecoin.
- The movement in quantum computing stocks, for now, is more about meme dynamics than proper investment thesis, particularly in a low-volume holiday period like this past week.
