To Bet or Not to Bet on Quantum Computing?

Big computer power is backed by big dollars. Major tech giants (Alphabet, IBM, Amazon, Microsoft), top universities and governments are pouring billions into research and technology development. As the investment levels increase, the technology is becoming more powerful, reliable and accessible.

The effort is to achieve a “quantum advantage”, or a marginal practical improvement by simulating problems classical computers cannot feasible solve.

Quantum computing is mind bending for most layby people. Even particle physicists struggle to get their minds around quantum mechanics and the many extraordinary properties of the subatomic world it describes:

Physicists understand quantum mechanics in the same way that someone who owns a smartphone understands a smartphone…they don’t know what is going on inside.?Sean Carol, Quantum Physicist

In this article I address the top five questions investors have asked me about quantum computing investing. Let us start with the most fundamental of all questions.

1. What is Quantum Computing?

According to?IBM:

Quantum computing is a rapidly-emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.

Classical computers are essentially arithmetic machines. They use binary signals (1s and 0s of code) measured in “bits”.

Unlike bits, which increase linearly, quantum computing uses “qubits”, a basic unit of quantum information which deliver exponentially more computing power when connected. This reflects the multiplicity of states in the quantum world.

The multiplicity can solve a category of calculation called combinatorics. This involves finding an arrangement of items that optimizes a goal. As the number of items grows, the number of possible arrangements grows exponentially.

In a 2019 demonstration, a quantum computer solved a problem in?three and a half minutes?that would take a classic computer millennia.

Fact: A 100 Qubit quantum computer is more powerful than all the supercomputers on Earth combined.

Quantum computers have the potential to revolutionize computation by making certain types of classically intractable problems solvable.

2. Is Quantum Computing Primed for Mainstream?

Up to this point we have referred to “quantum computing” as a blanket term for the computational technology that uses quantum mechanics. There are multiple frameworks and there is not a “standard” or common framework. However, logical gate-based quantum computing is the best recognized.

The stability of quantum systems over time and the ability to control them accurately is a limiting factor. The sensitivity of quantum systems to their environment makes them powerful but at the same time difficult to control with great accuracy. More research is needed to understand the error process in quantum systems.

Building and maintaining quantum computers is incredibly challenging. Qubits need to be protected from the environment to prevent the destruction of the delicate quantum states needed for computation. The longer a qubit survives in its desired state the longer its “coherence time.”

For these and other reasons, researchers say that the ‘true state quantum computer’ is yet to happen. The desired state is a computer that achieves zero errors and maximum stability, which is far away from existing quantum computers. The next five to ten years may see the leap into mainstream as billions continue to be invested to accelerate progress.

3. What are the Main Commercial Use Cases?

The use cases attracting most investments include Cybersecurity, Finance, bio-engineering and complex manufacturing.

Cybersecurity

The main encryption technologies use combinatorics which is hard to crack with classical computers, but Quantum computing could break most modern cryptography.

While the threat is mostly hypothetical today, governments and corporations are investing in public-key algorithms that are resistant to breaking efforts from quantum computers.

Notably, the?U.S. National Institute of Standards and Technology?is evaluating 69 methods of what it calls “post-quantum cryptography”.

Google and the security company Cloudflare have been?testing the speed and security?of two quantum computing-resistant protocols since 2019.

In 2021?Toshiba?launched its QKD over optical fiber, a hardware and software that combines Post-Quantum Cryptography (PCQ) through an all-in-one package that Toshiba will use to build the world’s first commercially available quantum-secured metro network with BT.

Financial Services

Computing speed has been a source of competitive advantage for a long time in Financial Services. Quantum algorithms can increase the speed for an important set of financial calculations.

JP Morgan (JPM) has been developing quantum algorithms around optimization, ML and Natural Language Processing (NLP). JPM works with different qubit modalities, trapped ions is one of these modalities.

Goldman Sachs (GS) is harnessing the power of quantum computing to run Monte Carlo simulations, these are projections based on simulated market movements. GS is also working with Amazon examining efficient ways to load data into quantum computers to solve problems such as portfolio optimisation.

Chemical and biological engineering

Quantum computers have demonstrated successful simulations of simple chemical reactions. In fact,?Richard Feynman?wrote: “if you want to make a simulation of nature, you’d better make it quantum mechanical”.

According to?McKinsey, the estimated value of the opportunity to big pharma of applying quantum computing to protein structure and interactions is $200 billion.

IBM and the Cleveland Clinic entered into a 10 year partnership to accelerate the discovery in healthcare sciences.

Another promising use case is the simulation of biological/chemical processes such as nitrogen fixation in nitrogenase, which helps create a more environmentally responsible fertilizer production.

Complex Manufacturing

Quantum computers can take large sets of manufacturing data and errors and translate them to a quantum algorithm to determine which processes contributed to the errors.

According to?IBM, when quantum computing’s predicted capabilities are applied automotive, aerospace, and electronics, industries could benefit from:

— Materials with more advantageous strength-to-weight ratios

— Batteries that offer significantly higher energy densities

— More efficient synthetic and catalytic processes that could help with energy generation and carbon capture

Quantum computing could also change the way manufacturers design products. Currently, computer simulation plays a crucial role in product design and pretesting. However, using computer simulations, safety margins can accumulate causing product weight differences and higher cost products.

4. Is Quantum Computing an Attractive Investment Opportunity?

Quantum Insider?analyzed hardware components, QCaaS (Quantum Computing-as-a-Service), application software and the value generated by end users. Based on this analysis, the total quantum computing market size is estimated to be $300 million in the low end and a high of $1.3 billion.

The forecast is that by 2025, the market will grow from $3.5 billion to $10 billion. When considering the period between 2025 and 2030, the estimate increases to $18 billion in the low end and $65 billion at the top end of expectations.

The range of compound annual growth rate — CAGR — of the total quantum industry is between 70 and 80% from 2021 to 2025 and, from 2025 to 2030, as the market matures, CAGR is predicted to be between 39% to 45%.

The total public and private investments totaled?$35.5 billion?in 2022 across a range of quantum technologies. Private investment is shifting from venture to initial public offerings.

Venture capital investing in innovative startups from China, India, Germany, UK, US, and Canada is soaring. This is occurring despite many companies predicting long periods before becoming profitable. The attractiveness is the potential reward from grabbing market share and being the first to realize quantum advantage.

5. What are the notable Quantum Stocks, Startups and Funds?

Disclaimer: This article does not represent financial advice and readers should do their own research.

Quantum Stocks

IBM (NYSE IBM)

IBM is steadily releasing new versions of its quantum computing technologies to deliver more to its clients. In 2022, it plans to release a 433-qubit processor called Osprey. A 1,121-qubit processor called Condor will succeed it in 2023. At that point, IBM hopes this system will solve problems more efficiently than a supercomputer.

This steady progression map indicates a clear vision of the future and a plan of how to get there. IBM also has?the resources to achieve these lofty goalsthat some startups may not.

Alphabet Inc (NASDAQ GOOGL)

In March 2022, Alphabet announced it was spinning Sandbox AQ out of Alphabet, therefore its operations are focused on its hardware division which is part of Google AI. Google offers access to Quantum Computers through GCP, as well as Cirq, an open source framework for programming quantum computers.

Microsoft (NASDAQ MSFT)

Microsoft’s Azure cloud platform gives companies access to quantum resources without the high expenses and infrastructure costs that typically come with it.

It also offers resources from QCI, Honeywell, Toshiba, IONQ and 1Qloud from its platforms. This optionality and flexibility has attracted clients like Ford and Pacific Northwest National Laboratory.

Nvidia Corp. (NASDAQ: NVDA)

In March 2022, Nvidia announced the launch of tools through cuQuantum to help run complex quantum circuit simulations and improve compiler tools.

Nvidia collaborated with Caltech to develop a state-of-the-art quantum circuit simulator with cuQuantum running on on?NVIDIA A100 Tensor Core GPUs. It generated a sample from a full-circuit simulation of the Google Sycamore circuit in 9.3 minutes on Selene, a task that 18 months ago experts thought would take days using millions of CPU cores.”

Unlike other players in this category, Nvidia is not building its own quantum computer, it is partnering with Google and IBM instead.

Toshiba (TYO: 6502)

Toshiba’s focus is Quantum Key Distribution. In 2021, Toshiba?announced their commitment to creating a trial network?in October 2021. BT will operate the network, providing a range of quantum-secured services including dedicated high bandwidth end-to-end encrypted links, delivered over Openreach’s private fiber networks, while Toshiba will provide quantum key distribution hardware and key management software.

RIGETTI (NASDAQ: RGTI)

Rigetti is a California-based developer of quantum integrated circuits used for quantum computers. Rigetti claims to be the first “universal quantum computing company. The company also builds superconducting quantum computers delivered through its cloud services platform called Forest and QCaaS providers.

D-WAVE?QBTS?(NYSE)

D-Wave, a Canadian quantum computing company, launched the D-Wave One in 2011, which is described as the first commercially available quantum computer.

D-Wave customers are building quantum applications for problems including logistics, portfolio optimisation, drug discovery, material sciences, scheduling, fault detection, traffic congestion and supply chain management.

StartUps

QUANTINUUM

When Cambridge Quantum, OS Company and Honeywell Quantum Solutions (HQS, carved out of the U.S. parent), came together they formed Quantinuum.

Quantinuum will be introducing a new cybersecurity offering in December 2022, this is their flagship product.

It is widely touted as a likely IPO candidate with a listing expected in 2022. Though Quantinuum is a stand-alone company,?Honeywell?is initially the largest shareholder with an approximately 54 percent ownership stake of the new entity. It has invested nearly $300 million allowing the company to be well capitalized.

Silicon Quantum Computing

Silicon Quantum Computing Pty. Ltd. (SQC) is focused on building a quantum computer in silicon. SQC recently delivered the world’s first integrated circuit built at the atomic scale, is on track to build a commercial quantum device by 2028, and has the ultimate goal of delivering useful commercial quantum computing solutions.

CQC

Cambridge Quantum is an independent quantum computing company, based in Cambridge, England. Founded in 2014, CQ builds tools for the commercialization of quantum technologies with a focus on quantum software and quantum cybersecurity.

Quantastica

Quantastica?is a Finnish startup that offers quantum computing as a service platform (QCaaS). It combines programming tools with cross-platform support and quantum simulators.

The company offers circuit simulators support browser-based operations for small-scale computations and on-premise server-based simulations for complex algorithms. The platform gives businesses access to high-performance quantum computing without the need for high development costs. Their customers are using the platform for drug development, materials discovery and supply chain logistics.

Funds

Defiance Quantum ETF (NYSEMKT:QTUM)

Definance’s Quantum ETF debuted in 2018 promising investors exposure to the quantum computing thematic trends. The ETF is made up of 70 individual stocks, primarily semiconductor and software companies that are working on, or have exposure to, quantum computing. The total net assets under management are $172M.

The top holdings in the fund are:

Analog Devices (NASDAQ:ADI) 2.8%

Synaptics (NASDAQ:SYNA) 2.5%

Ambarella (NASDAQ:AMBA) 2.4%

Advanced Micro Devices (NASDAQ:AMD) 2.4%

Nvidia (NASDAQ:NVDA) 2.3%

Xilinx (NASDAQ:XLNX) 2.2%

ON Semiconductor (NASDAQ:ON)2.1%

Lattice Semiconductor (NASDAQ:LSCC) 2.1%

Cadence Design Systems (NASDAQ:CDNS) 1.8%

Marvell Technology Group (NASDAQ:MRVL) 1.8%

Quantum Exponential (QBIT:PZ)

Quantum Exponential?trades in the?AQSE. Its investments include quantum communications, quantum sensing, quantum metrology, and quantum computing software and components.

Conclusion

While quantum computing is not yet primed for mainstream, large corporations, governments and universities are investing in the race towards quantum advantage or preparing for its arrival.

Investors can gain exposure to the quantum space by investing in or trading on public companies making quantum breakthroughs or quantum specialized funds supported by a dedicated team of experts.