Transcription
Up until now, quantum computing has been kind of a science project. Something that's always about 10 years away from being realistic. But last week, something happened that almost nobody in the mainstream financial press is framing correctly, and it could impact your portfolio a lot longer than most recent Nvidia earnings beat. Here's what happened.
The United States government just made a $2 billion bet on quantum computing. Not a research grant, not a vaguely worded policy promise, but a serious equity investment. Meaning the US government is now taking actual ownership stakes in nine American companies to help make sure the US wins the quantum race over China. In this video, I'm going to explain what happened, what it means, the stocks involved, and most importantly, how you as an investor can take action today. And if you enjoy timely news topics like this, then please hit the like button. It tells me to make more videos along these lines in the future.
And by the way, I'm Steve Reiss Meister. I've been investing for over 40 years. I spent many of those years as editor-in-chief at Zacks.com delivering insights to millions worldwide. And now I'm a partner at Wall Street Zen.com, where I help develop the quant rating system that analyzes stocks on a 115-factor checklist to help you identify the strongest opportunities. Before we get into the thick of the conversation, please remember that I'm sharing data and a few stock names here, but this is not personalized investment advice. So always do your own due diligence before putting your hard money to work.
That said, let's talk about why this moment is so vital for quantum computing. First, I need to address something that most financial media gets wrong. They treat quantum computing like a binary bet. It either works or it doesn't. Either we're 10 years away or we're not. That's not how big technology transitions actually occur, and it's not how the US government sees it either. The real question isn't does quantum work yet? The question is who controls the manufacturing infrastructure when it does work? Think about semiconductors. The reason the CHIPS Act exists and the reason we spent 52 billion trying to rebuild domestic chip fabs is because we let that manufacturing base move to foreign locations over the past 30 years. By the time we realized how strategically exposed we were, Taiwan Semiconductor was making 90% of the world's advanced chips, and the US as a nation was scrambling.
By the way, if you want to check out the fundamentals on any of the stocks I talk about in this or any of my videos, then go to wallstreetsand.com. Once there, enter any ticker you're curious about and see all the data on our free quote pages. You can scan the QR code to get there now.
So, let's get back to that main story. Right now, Washington is determined not to make the same mistake they made with semiconductors. They want the US to be leading the charge. That's because the stakes of quantum computing are actually higher. Remember that a sufficiently powerful quantum computer can break current encryption standards. It can model molecular structures for drug discovery at a scale we can't even imagine today. It can solve optimization problems in logistics, finance, and energy that classical computers simply cannot touch. And China has been pouring resources in this arena for years. So, what the Commerce Department just did isn't just tech enthusiasm, it's industrial policy with a national security mandate behind it. That's a completely different animal and it's why investors need to take this seriously in a way we haven't before.
Now, let's unpack the actual deal this is we're talking about because the structure of these investment deals is unusual and the details matter. The Commerce Department recently signed nine letters of intent under the CHIPS and Science Act totaling a little over $2 billion. In each case, the US government takes a minority non-controlling equity stake in each company it funds. They've done this before. In August of last year, Commerce took a 10% stake in Intel under that same framework. The Intel stock ran meaningfully higher after that. The market is calling this the Intel style investment model and it just got applied to the entire quantum sector.
Now, let's talk about who gets what this time and why it matters. IBM is getting $1 billion, about half the entire package, and they're using it to do something generally significant: spin out a brand new subsidiary called Anderon, which IBM is calling America's first pure play quantum wafer foundry. This will be a 300 mm quantum wafer facility in Albany, New York. It will specialize in the same wafer format used in leading classical chip fabrication factories. All right, here's the part that really got my attention. IBM isn't just using the government's money. They're matching it dollar for dollar and putting in another $1 of their own cash along with significant IP, assets and workforce. On top of that, they said they expect outside investors to join as it scales. That's not a company hedging its bets. That's a company that giant believes that this is where the puck is going and they are skating to it as fast as possible.
Why is that matter beyond the large dollar figure? Because right now, there is essentially no domestic supply chain for quantum grade components. Currently, if you want to build a quantum computer at scale, then you're cobbling together parts from wherever you can find them. Anderon is meant to solve that problem in keeping it here in the United States. IBM's stated goal is to deliver a fault tolerant commercially viable quantum computer by 2029. With a fresh $2 billion behind their foundry, that ambitious timeline just got a lot more credible.
Next up, we have GlobalFoundries with a symbol of GFS, who gets $375 million to build a separate foundry, but there's a different mandate here. Where IBM's Anderon is focused on superconducting qubits, GFS is building what they're calling a multi-modality facility: superconducting, trapped ion, photonic, topological, silicon spin, right? Every major approach to quantum hardware under one roof. That's a deliberate hedge, and let me explain why. These awards are being administered by NIST, the National Institute of Standards and Technology, a federal agency inside the Commerce Department. They're not flashy, they're not political. They're the people who set the technical standards that underpin American industry. And their executive director for semiconductor investment put the strategy plainly. They're taking a portfolio approach, funding multiple modalities at once. This means each award is targeted at a specific engineering problem of genuine consequence. Now, when NIST uses language like that, it means the problems are real. They don't do hype, right?
That is important context when considering the second tier of seven quantum computing companies, each getting between $38 to $100 million dollars each. Three of those companies are public. We're talking about D-Wave Quantum with a symbol of QBTS, Rigetti Computing RGTI, and Inflection with a symbol of INFQ. Each recipient has a specific technical mandate, such as error correction, qubit control at scale, photonic packaging, and cryogenic integration. This isn't a scattershot funding. Every dollar is tied to a specific milestone.
With this in mind, let's talk about the market's reaction and what it's telling us right now. But before I continue, now would be a good time to subscribe and hit the notification bell. That's because I release videos like this frequently, and this is the best way to ensure that you don't miss the next one.
Now, let's talk about how the market reacted when this news dropped. Because the size of the moves tells you something important about how investors are looking at this entire sector. IBM surged over 10% in a single session. For a well-known large cap, that's a massive single-day move. No doubt this was driven by the success with the US investment in Intel. Whereas the smaller companies, D-Wave, Rigetti, and Inflection, all jumped 30% or more on the news. It's worth noting that Inflection only went public in February through a SPAC merger. So, this funding news was essentially its coming out party as a public company.
But, here's what I think is the most telling data point from the day, and most people missed it. IonQ gained over 10% and Quantum Computing at nearly 20%. Neither of these companies is among the nine grants recipients. They got nothing from this deal, and they still moved double digits. When stocks that weren't even invited to the party are up that much, it's not just rewarding the winners. It's a statement that the entire outlook for the group is improving. That's a very different and much more powerful signal that's important to heed at this time. The key question at this stage is whether the initial pop was just a one-day event or the beginning of a sustained run higher. And that's exactly what we will tackle in a minute.
But first, if you like analyzing stocks and industry trends, that is exactly what you get from me live every Monday at 7:00 p.m. Eastern Time. Not just what stocks I'm buying, but finding them so you can do the same. I also share my handpicked stock of the week blending the power found in our Zen Ratings Quant Model along with my greater than 40 years of investing experience. All this and more is part of our live training session this coming Monday at 7:00 p.m. Eastern Time. It's totally free. Just sign up at wallstreetzen.com/live. You'll also find a link in the description or scan the QR code on the stream.
Now, let's discuss the forward look for the industry and my actionable take on all this information. The quantum computing revolution is real. This is not vaporware. The government taking equity stakes, not just writing grants, means they take this area very seriously. Truly a matter of national security. The Intel style investment model works because it aligns incentives. Washington wants these companies to succeed because Washington now owns a piece of them. And the size of the prize is not trivial. IBM has cited an industry projection of up to $850 billion in economic value in the quantum sector by 2040. Even if that number is half right, then we are in the earliest stages of something that could truly be game-changing for so many industries.
The Commerce Department officials themselves have said these commitments may take years to generate tangible results. Quantum computers today still devote the vast majority of their processing capacity to error correction, not actual useful computation. The pure-play stocks like Rigetti and D-Wave have very small revenue bases relative to their market caps. We're talking about barely $10 million dollars per year for each of these companies. And the stocks already moved hard on the news. You're not getting in at pre-announcement prices.
So, where does that leave you? Let me lay it out in this best-case scenario. Let's say that Anderon gets built. The domestic quantum supply chain starts to exist. IBM hits its milestone by 2029. The pure-play companies scale their hardware on top of that infrastructure. Commercial utility arises, earnings growth would follow leading to more substantial share price gains. Here again, this is the best-case scenario. That's a multi-year sequence of events, not a trade for the next week or the next month.
So, where does that leave you right now? Honestly, it's time for caution as in perhaps a wait-and-see approach. That's because I ran every major quantum name through the Zen and F grades, which points to poor fundamentals and very low likelihood of stock price outperformance. What that tells me is the fundamentals haven't caught up with the hype and excitement yet. The story is real, but the investment case is not quite there yet, as it often is the case in these early stages. So, for now, this is a wait-and-see situation. I recommend following these companies by adding them to your free wallstreet.zen.com watch list so you can monitor daily changes in the Zen readings or see what Wall Street analysts are saying about these stocks. For now, it is good enough to understand the technology, know the milestones to watch like IBM's 2029 target, cubic error rates coming down, and the early signs of commercial utility. And when these names start earning A and B grades in the Zen readings, that's your signal that the reality of their huge investments has caught up with the current sky-high potential. That is the time to act. Now, I'm not chasing them right now, but I'm watching it very closely and I encourage you to do the same.
So, there you have it. My state of the market address for quantum computing. But, here's my question for you. Are you adding any of the quantum names to your watchlist right now? Please share which ones and why in the comment section below. Please don't be shy. And if you like this video, then be sure to check out another recent video featuring a major market catalyst: how oil prices could impact the stock market moving forward. It's on your screen right now.