Transcription
Quantum computing is moving fast inside research labs, and investors are paying attention. There's no single dominant player in quantum computing yet, but Google is widely viewed as the technical leader, with IBM and Microsoft close behind. Big tech is investing billions in long-term quantum research. Even though the technology contributes almost nothing to earnings today, the question is whether today's quantum stocks are early winners or just early.
Most experts say real commercialization is still 5 to 10 years away, even as some companies are starting to show real technical progress. So, before we get into who's making headway and how long this could take, it helps to understand the basics. What exactly is a quantum computer, and how is it different from the machines that we use today? For that, I spoke with Scott Arensson, a professor of computer science at UT Austin and one of the leading experts in quantum computing. And if quantum computing does become practical, what are the first real-world problems where it actually makes a meaningful difference?
>> The first real-world problems where it makes a difference are almost certainly going to be in material science, in condensed matter physics, uh, and then, uh, hopefully in chemistry also. You know, you might only need a few big wins in those areas to sort of give rise to new billion-dollar industries, right? And so that, that, I think, is the core of the economic case, uh, you know, it was decades ago and it still is today, uh, for for what a quantum computer helps us with in practice.
>> Google says its new quantum echoes algorithm ran dramatically faster than classical supercomputers and could lead to useful applications within 5 years. From your perspective, how meaningful is that progress?
It was, uh, one of the most exciting, uh, experiments in quantum computing in the last year. Within the last year or so, you know, with Google's result, with Quantinuum's results, you know, we are starting to see experiments that outperform a classical computer at actually calculating a number where that number, you know, might even be of some scientific interest. I do think it's going to be a very exciting next five years. The thing that Google did is not yet useful, I would say, for for any known application, but we are finally getting to the point where you could think about doing simulations that are at least going to help answer scientific questions in condensed matter physics and and areas like that, and then, you know, at some point, hopefully would be commercially useful.
>> There's a lot of talk about whether quantum could have a sudden, ChatGPT-style breakthrough. Based on what you see, does progress in quantum happen in leaps like that, or more slowly and incrementally?
>> The progress in hardware that I think we've seen has been has been more incremental. There's an enormous interest in sort of, you know, hyping up, you know, each advance like this is what's going to finally make quantum computers possible, right? When, you know, for those of us in the field, you know, it's like another step, you know, along a journey that we've been on for for 30 years now. To the extent that that there will be like a sudden change, you know, it's just it's because our correction will become a net win with quantum computing. Uh, you know, we've needed this this sort of continuous improvement in hardware.
>> Do large tech companies like Google and IBM have a fundamental advantage here, or is this still a space where smaller and specialized teams can lead?
If a company wants to build hardware that is on the that is actually on the frontier of scaling, you know, of what's possible now, like several hundred million dollars now seems like the bare minimum. We've seen an enormous proliferation of quantum computing startups over the past decade. And I would say that they, they are everywhere on the spectrum of seriousness, from the Quantinuum or or or SciQuantum, let's say, that have people who really understand all the issues, you know, have a really detailed engineering plan for, you know, actually building the hardware, and they might still fail. We've seen, you know, people just putting the word "quantum," you know, on things that are really just classical, right? Sometimes they call it just "quantum-inspired," right? That sounds really practical and important. The problem is that, well, a classical computer can do all of those things also. And they sort of skip the step where they, you know, make the case for why the quantum computer is better. If you look at IonQ, for example, so Ion was a company, you know, uh, doing trapped ion quantum computing, you know, it was started by some, you know, very serious scientists, uh, who I respect, but then at some point, it got taken over by sort of the marketing side. Instead of actually solving the hardware problems, they sort of focused on going public, you know, having an IPO, and just sort of selling people the narrative about quantum computing that they wanted to hear. They're now a publicly traded company. You know, they're valued at, I think, $17 billion. You know, it seems utterly disconnected from, you know, because in terms of hardware, uh, I don't think that they're at the frontier in hardware, right? But what they're at the frontier of is sort of selling this story to people.
>> So, how should investors actually think about quantum right now?
To break that down, I spoke with Bank of America analyst Wamzy Mohan, who covers the quantum computing industry.
When you look at the quantum space overall, what's the simplest way to explain to a retail investor what makes a quantum computer different from a normal one?
>> Yeah, uh, Claire, thanks for having me. Look, I, I think that when you look at quantum computing, uh, the way that the computer functions is fundamentally different. When you think about a regular computer, uh, what you're doing is you're using, at the very basic level, transistors which function as gates. And effectively, what that means is you're able to store a unit of information, a zero or a one, typically, and you can make all computer programs essentially synthesized into a zero or a one at the end of the day. With quantum computing, the advantage that you have is that the fundamental bit is called a qubit, and a qubit can take a lot of different values at the same time. So the fundamental difference is really the unit of measurement is something that is much more powerful than traditional computers.
>> And quantum stocks have jumped this year. From your perspective, what is driving that renewed investor interest?
>> Yeah, so quantum has been around for a very long time. I remember, uh, writing a report about quantum maybe in 2016 and talking about almost 10 years ago, and just talking about sort of the potential of this, right? And what has happened in the last maybe 20 years or so is that there have been developments to make this fundamental qubit that we were just talking about, uh, more and more stable, and then the ability to take that stability and then start to make measurements on it. That whole process has taken a very long time to evolve because fundamentally, these bits operate at the subatomic level. It's extremely difficult to first make them, create them, manipulate them, and then measure them. And so each of these steps have made individual progress over the last 20 years, which is what has resulted today in the ability to actually do something useful. And we're still pretty early in quantum in the sense that although these stocks have moved by a lot, it is an anticipation of what will happen in the future. The total amount of revenues that we project out for the quantum industry by 2030 can be between three to four billion dollars, and so, you know, we're very, very early, given like the number of companies that are participating in this space is actually quite immense, and we're just just starting out. The reason these stocks have also jumped is because not only have we done some breakthroughs in in the ability to generate and and measure these, but also a few companies outside of these quantum companies have started to use and demonstrate practical applications for this. And so the excitement comes around because if you can test some of these things and say, "Hey, I'm getting a lot better performance. I'm able to solve problems that a classical computer might have taken thousands of years to do in a matter of hours." You've got a tremendous amount of both, uh, time and power savings, both of which are becoming extremely important.
>> And I want to go back to that number you mentioned really quick, $4 billion by 2030. What companies do you expect to capture most of that value first?
>> Yeah, it's a great question. And then if you look at like the most established companies in quantum, those are the IBMs and the Googles of the world that have been at it now for a very long period of time, have very solid balance sheets, a lot of cash to deploy, tremendous amount of R&D that they're deploying towards this quantum initiative. So we think that the bulk of what is going to get captured will be by these established players. There are newer players where there is a lot of technology risk and execution risk, right? So I think while we don't cover a lot of the the newer players in quantum, we do think that these are stories which are pretty binary outcomes, right? You you want this technology. I mean, the analogy I would draw would be with a biotech company, you know, it, it could explode higher if they got FDA approval, and it could just go to zero if not, and it's kind of somewhat like that because these companies don't have a lot of revenue to show right now, yet their valuations are very significant. And so when you put those two things together, but the fact that it's very difficult technology to explain, and the revenue milestones are just not very measurable in concrete terms in the very near term, in the next one to two years, I think all that makes it extremely difficult for an investor to keep track of what are the right milestones to track. Are they really making progress towards capturing that $4 billion or not by 2030? And that's really hard to do.
If you had to give retail investors one grounded takeaway, when does quantum become something worth paying attention to as an actual market opportunity as opposed to an exciting science story?
>> Yeah, I think that, you know, the inflection points most likely will come sometime in 2029 or 2030. This is like, you know, still about four to five years away in terms of real commercial value that that can be, uh, you know, recognized in in the company's financials. And so while there is some time for that, I think the market obviously, you know, looks forward and starts to discount. So the progress, the technical milestones that companies will hit ahead of that, uh, should give investors increased confidence that quantum would eventually monetize at these high rates. But I think '29 and '30 is realistic for it to really show up in the numbers and in the financials. Uh, I would say maybe an year or two ahead of that, uh, people will start to discount the probability of that scalability of these solutions really hitting the market.
>> Google's Willow chip and this new quantum echoes algorithm have sparked a lot of attention. Do breakthroughs like these change your outlook for when quantum becomes useful, or do they mostly show progress while big hurdles remain?
>> I would say that, you know, every milestone is important because this is technology in the making for a long time. So it's always refreshing to see both the companies themselves, uh, publish real research that shows that they have achieved some kind of milestone, and then take that to industry practitioners who are then deploying the capabilities achieved with that milestone into real value-add projects. And so, uh, we think the opportunity really exists, and these proof points are very important to get increased confidence. I would say that, you know, it is a series of these proof points ultimately that will converge into a large, fault-tolerant system by the time you 2029 or 2030 rolls around. So we do monitor and, uh, pay a lot of attention to each of these milestones because independently, uh, they might not mean a lot, but I think cumulatively across the industry, as you look at what the breakthroughs are, all of them do mean something in terms of the progress that's being made.
>> And most of the revenue in this sector still comes from government and academic work. From an investor standpoint, how sustainable is that business model?
>> Yeah, it's a really interesting question. I think that, you know, uh, different companies have different approaches, right? Some companies want to sell systems, and these systems today could be several million dollars, but by 2030, they could be $30, $40, $50 million a system. And so which sort of organizations would be willing to, uh, buy those kind of systems? And it might be defense organizations, it might be, uh, research organizations, and companies that today might be buying supercomputers are very much in that right, um, same group of of customer base. But for enterprises, for example, it might make more sense to use quantum as a service, like they do cloud computing as a service, and that could be a very different business model. IBM is expecting to kind of really capitalize on on that sort of a business model, uh, where they have their quantum computers sort of in their, uh, data centers, and then you have, uh, customers join in, uh, remotely and be able to run and use quantum as a service. And so our expectation is that as you go forward in time, you're going to get more and more customers, uh, diversification in that customer base because, uh, when you make it accessible as a service, the barriers to sort of adopt that technology go down quite a bit because you just don't need that massive amounts of capex spending up front to just bring a quantum system. And then obviously, it's non-trivial to maintain it and run it and service it and all those things that go with it. So a service model makes a lot of sense to us, and we think like that's where most of the industry is going. And as they do that, and and today you can go and do this at at Amazon, at IBM, at various places where you can run some simulations and other experiments on these quantum quantum machines, uh, over the web. And so in some ways, it's already there as a technology, just the level of maturity and the systems behind it are going to improve over time.
And to wrap things up here, you said before in a Wall Street Journal article that scalability is the primary question for the next five years for investors. What milestones should they actually watch for to know that this field is progressing? Like, what's that last little bit that you would leave them with?
>> Yeah, thanks. Look, I think that scalability is is, um, what what does that really mean, right? So when we talk about these bits of information, the quantum bits that we were talking about earlier, uh, these bits have a very finite life, but you want these bits to be able to communicate with each other, uh, to be able to pass information around to do something useful. And so to communicate across, you know, these extremely large systems that are running at, you know, sub-zero temperatures, it's kind of hard to do that. And so the gating factor is making these bits talk, communicate, and talk over, um, at a distance, and that is a problem that is being worked on in different ways for the different types of bits that are being there. So superconducting qubits, uh, are are primarily something that that the IBMs and Googles are doing, but photonics is another very interesting area which can leverage a lot of existing investments. And there are other companies like SciQuantum and Xanadu, which are doing that, both of which are private. So you have different companies approaching this a bit differently, but the stability of these systems is improving, but now you've got to get them to talk to each other, which is what that scalability piece really means. And once you can get them to talk to each other, then then you really have, um, a real fault-tolerant system that can be really useful at scale.
So the race is on between small quantum startups trying to survive and scale, and big tech giants that can really afford to wait. So whether there's a sudden breakthrough or a slower path forward, timing will be everything. For Investors Business Daily, I'm Clara Okconor.