Quantum computing stocks are once again in focus after yesterday’s major breakthrough announcement by one of the biggest players in this field.
Investors have had high expectations from quantum computing firms for many years, but the technology has consistently failed to deliver on the promise. However, a deeper understanding of the tech behind quantum computing is required to fully understand the complexity of the issue. Quantum computers were theorized in the 1980s, but their development has been fraught with challenges due to the fragility of qubits. Unlike traditional computers that use binary bits, like ones and zeroes, quantum computers utilize quantum bits, or qubits, which can exist in multiple states simultaneously due to superposition. Qubit fragility typically leads to higher error rates for quantum computers. Companies have tried to address qubit fragility through innovations — ranging from light particles to trapped ions, but few have been successful. However, latest breakthroughs in this field herald the arrival of quantum supremacy – a term used to explain the processing power of quantum computers compared to traditional ones.
Since the latest breakthroughs showcase that quantum computers can accomplish tasks in minutes that would otherwise take ten septillion years – exceeding the age of the universe – it would be reasonable to assume that quantum computers can now move on from accomplishing mundane tasks like generating random numbers or solving specific mathematical problems, towards practical applications in drug discovery, artificial intelligence, and cryptography. This has huge implications for investors who are increasingly frustrated by the plateauing advancement in the field of AI and are actively exploring for emerging opportunities in the tech field that offer explosive growth potential along the same lines. Sylvia Jablonski, the CEO of Defiance ETFs, appeared on news platform CNBC earlier this year to highlight this.
“The way I see markets today is the absolute fervor and interest in all things A.I. and A.I. is the tide that rises all boats. I think quantum is the next generation of A.I. You need it to process data and make changes in all of the sectors we have been talking about that A.I. has been impacting with drug discovery and curing diseases. Just as AI is powering progress in not just the computer industry, but in fields that adopt the use of AI, quantum computing will be used in processing data for sectors already being transformed by AI, such as drug discovery and curing diseases.”
For this article, we selected quantum computing stocks by sifting through the holdings of popular quantum computing ETFs. The stocks listed below are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A data analyst pouring over a chart, the intricacies of its lines being revealed.
Number of Hedge Fund Holders: 2
Quantum Computing Inc. (NASDAQ:QUBT) is an integrated photonics company that offers accessible and affordable quantum machines. Even though the firm is small, with a market capitalization of around $880 million, it is one of the best quantum computing stocks according to hedge funds. One of the reasons for this is the significant momentum behind the stock, with shares rallying close to 750% so far this year, as investors bet big on the company to deliver on the promises of quantum technologies and products under development.
In late November, the firm announced that it had secured two orders for the thin film lithium niobate (TFLN) photonic chip foundry. TFLN is a cutting edge material used in high-powered computers. This material operates with an extremely high bandwidth and with lower insertion losses, and is likely to be a key enabler of the 1.6 and 3.2 terabit optical switches and interconnects used by hyperscalers in their AI data centers.
TFLN is presently only sourced in small quantities from China. However, Quantum Computing plans to open a fully commissioned TFLN fabrication facility in Arizona by the end of the first quarter of 2025. The firm stated in a policy paper published earlier this year that once the facility is functional, it would become the only company in the United States capable of processing 150 mm wafers. TFLN chips can be used for a variety of purposes, including quantum computing, quantum sensing, high-frequency modulators, and LiDAR.
Overall QUBT ranks 10th on our list of the best quantum computing stocks to buy according to hedge funds. While we acknowledge the potential of QUBT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QUBT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
