Quantum computing is quickly becoming the next big opportunity in the field of artificial intelligence (AI).
By now, you’re aware that artificial intelligence (AI) is the biggest opportunity to revitalize the technology sector. Semiconductor stocks have been the biggest beneficiaries of the AI umbrella. This makes sense, as chipware plays a key role in the development of countless generative AI applications.
But in recent months, an area known as quantum computing has emerged as the latest shiny object in the AI realm.
Below, we examine how quantum computing stocks have performed recently, then reveal the top picks for companies that are paving the way for this new and exciting technology.
Will quantum computing stocks become AI’s new darlings?
Quantum computing represents an exciting new chapter in the AI story. Unsurprisingly, investors are digging in, looking for ways to invest in quantum computing. See the trends in the graph below.
RGTI data by YCharts
Towards the end of 2024, the stock prices of quantum computing stocks such as IonQ, D-Wave Quantum, Quantum Computing, and Rigetti Computing all experienced significant increases. Curiously, all of these companies went from being penny stocks at the beginning of 2024 to valuations that skyrocketed to billions of dollars in a fairly short period of time.
While the above moves may suggest that these stocks are the “next big thing” in the AI space, I’d be wary of following herd mentality. Each of the above companies is a development stage company. This means that no company is making significant profits and all companies are continually burning cash. In other words, the exponential returns shown in the chart above are the hallmark of meme stocks, not of sound, prudent investment opportunities.
While the above stock prices may suggest that these stocks are cheap, the valuation multiples suggest that none of them are worth their high prices.
All this said, there are many more secure opportunities when it comes to quantum computing.
Image source: Getty Images.
This is my top pick for investors looking for exposure to quantum computing
According to popular business theory, the people who became richest during the gold rush were peddlers selling picks and shovels, not miners looking for gold. The basic idea here is that whenever a new theme emerges in the investment world, it’s often a good idea to identify the companies selling the metaphorical picks and shovels.
When it comes to quantum computing, I think of Nvidia. (NVDA 2.60%) as the greatest opportunity.
In a recent interview at the CES trade show in Las Vegas, Nvidia CEO Jensen Huang said he believes it will be another 20 years or so before quantum computing is fully scaled up. I think there are pros and cons to this outlook.
For companies like IonQ, Rigetti Computing, D-Wave, and Quantum Computing, Huang’s comments suggest there is still a lot of work to do before these businesses can achieve significant growth. That is likely to mean that these companies will continue to spend heavily on research and development (R&D) and remain cash-generating businesses for some time to come.
It’s not a good situation for these companies, but it could be a good opportunity for Nvidia. The development of quantum computing requires significant investments in various AI infrastructures such as graphics processing units (GPUs), data centers, and software. Nvidia supplies all three of these products, making the company an important part of the quantum computing movement.
For me, Nvidia is the “pick and shovel” component of quantum computing development. In a sense, NVIDIA has the luxury of not knowing which companies actually make breakthroughs in quantum mechanics and which don’t. Either way, Nvidia hardware and software will be involved.
Given that quantum computing will likely take decades to reach scale, Nvidia sees a number of benefits as more companies begin to explore this new area of the AI landscape. Suggested. There are many reasons to be bullish on Nvidia beyond 2025, but I see quantum computing as another tailwind that hasn’t yet factored in the company’s long-term potential. I think Nvidia is a lucrative opportunity to buy for many more years, especially for growth investors and investors looking to get deep exposure to AI applications.
