The modern digital world is built with its transistor-based chips on the foundations of Quantum Mechanics, the physics governing the world at the fundamental level.
However, the world has barely scratched the surface when it comes to the full potential of Quantum Mechanics, that is, until Quantum computing came to the foray. In the same spirit but in different light to its classical counterpart, quantum-computing technology seeks to exploit particle superpositions for computing operations.
It differs from classical computing due to the particle superpositions that occur at the quantum scale, allowing a qubit to be in a state of both 0 and 1 until it interacts with the environment. This exploit would allow Quantum computers to outperform classical computers exponentially in certain computing tasks. This could have huge implications for healthcare, finance, telecom, and energy industries, among others, ushering the world in a new era of accelerated economic growth. Mckinsey estimates that an economic value of $0.9 – $2 trillion can be extracted by 2035 across four industries – chemicals, life sciences, finance and mobility – due to quantum computing.
The McKinsey report estimates the Quantum computing market size to be between $45 billion to $131 billion by 2040.
Precedence Research appears more conservative and probably more grounded (You’ll see why). According to their report, the market for quantum computing is around $1 billion as of this year and is projected to expand at a CAGR of 30.9% from 2024 to 2034, reaching a size of $16 billion by the end of the forecast period. The US is expected to comprise $7 billion of the projected quantum market pie by the end of 2034. The market in the US is expected to grow at a CAGR of 31.2% from 2024-2034. As of 2023, North America unsurprisingly comprises 61% of the quantum-computing market.
As we point out in a similar article from May, analyzing the quantum-computing equity market based on an ETF exposed to it is a bit tricky. Very few companies have core business related to quantum computing and most companies in these ETFs have peripheral Quantum computing projects but are big and high-performing in other industries that are core to their business, so an ETF’s performance wouldn’t be saying much about the quantum computing industry.
Therefore, we’ll delve a little deeper to see what actual challenges there are in the industry and whether they can be practically solved for the delivery of a return on investment as far as scalable practical use cases go.
Technological Challenges with Quantum Computing
Solving Quantum computing is akin to a Herculean labor. It’s hard to argue with the laws of physics, and when it comes to Quantum computing, a major problem yet to be overcome is Decoherence-induced errors. Decoherence is the enabler of transition from Quantum physics to the everyday physics we experience. Qubits (the quantum equivalent of bits) can only remain in a superposition as long as there’s no interaction with the environment.
Even the slightest interaction causes them to decohere to classical bits, introducing computing errors. The hard part is to keep them in a superposition long enough for quantum computation to be viable. Further, to scale quantum computing, you have to add more qubits to the system, but adding more qubits, in principle, increases the probability of error. Finally, any approaches to error correction must obey the Quantum no-cloning theorem, which makes these approaches inherently more challenging than their classical counterparts.
Progress to Overcome Challenges
In 2022, Azure Quantum demonstrated the soundness of physics required to build topological qubits (these qubits are different in that they can maintain coherence for longer and would thereby lead to a reduced error rate through more stability).
On the other hand, Researchers at Quantum AI, an arm of another big tech company, made a breakthrough in 2023, demonstrating a reduced error rate even with an increased number of traditional Qubits. However, rare correlated error events that happened roughly every hour limited the exceptionally low error rate required for practical quantum computing, with more research required to tackle them.
What the Big Money Says
Despite these steps, the challenges remain to be effectively overcome. It’s anyone’s guess how long it’ll take for quantum computers to scale and become economically viable. If the amount of capital being invested by venture capital firms in the industry is any guide, it certainly doesn’t look good for the industry as of recent.
According to IQM’s State-of-Quantum Report of 2024, the venture capital invested in Quantum startups dropped by 50% worldwide in 2023 compared to the year prior, with the US quantum startup ecosystem seeing the greatest decline of capital at 80%.
As far as public equity in the quantum computing industry goes, it is overall yet to be profitable. The industry hasn’t experienced any operating leverage in any meaningful sense and is focused on growing revenue in its early stage. The hard problems with regards to practicality and scalability has resulted in many quantum computing stocks trade at price levels that make them non-compliant with stock exchanges, resulting in delisting threats by stock exchanges.
With that in mind, let’s move to the 10 Best Quantum Computing Stocks to Buy According to Analysts.
Also read why Jim Cramer can’t recommend a particular quantum computing stock here.
A data center filled with the latest servers and networking equipment representing the company’s cutting edge security infrastructure.
Methodology
For our list, we’ve selected companies that have a presence in the quantum computing industry and ranked them on the basis of their 12-month price upside on analysts’ consensus. Please note that we have used the median upside because average upsides can be greatly affected by outlier analysts on either side of the low or high.
For some stocks, both mean and median upsides were too low, but since we wanted to limit our list to pure-play stocks as much as we could, we chose them using the high end of the upside, provided that at least 9 analysts had contributed to their average upside.
Finally, we ranked the stocks on weighted scores, with median upside having a weight of 0.4 while analyst count having a weight of 0.6. For stocks for which we have used high-end of the upside, the weight for the upside is 0.2, with analyst-count weight reduced to 0.4. For stocks whose upside is based on only one analyst, and if the upside is over 30%, we assigned weights of 0.01 to both the upside and the analyst count.
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).
READ ALSO 10 Best Future Stocks for the Long Term and 10 Best Affordable Stocks Under $10 to Buy.
10. Honeywell International Inc. (NASDAQ:HON)
High Upside Potential: 9.74%
Number of Analysts: 9
Insider Monkey Weighted Score: 5.5
Honeywell International Inc. (NASDAQ:HON) is a conglomerate headquartered in Charlotte, North Carolina. The company operates in several industries like aerospace, energy, logistics, technology and healthcare, among others.
The conglomerate operates in the quantum computing industry through its company Quantinuum, which was formed after the merger of Honeywell Quantum Solutions and Cambrige Quantum. Among Quantinuum’s quantum partners are Airbus and BMW Group.
In quantum, the company is known for ion-trapped qubits that it claims are easier to manufacture and control. The advantages offered by the approach are high fidelity and long coherence times. Compared to other technologies like superconducting qubits, trapped ions have shown better error rates.
In January 2024, Honeywell (NASDAQ:HON) raised $300 million for Quantinuum, bringing the company’s valuation to $5 billion. This funding round, led by partners like JPMorgan Chase, has boosted investor confidence in Honeywell’s quantum initiatives. According to reports, Honeywell is considering an IPO for Quantinuum as early as 2025 and is reportedly looking for a valuation of $10 billion for its subsidiary.
In its 2030 roadmap, the company said it would have a working universal quantum computer it calls Apollo by the end of the decade. A total of 9 analysts have rated the stock, and although the median upside is -3.31%, we ranked it on its upside from the high end, which stands at 9.74%.
9. Quantum Computing Inc. (NASDAQ:QUBT)
Upside Potential: 674.34%
Number of Analysts: 1
Insider Monkey Weighted Score: 6.75
Quantum Computing Inc. (NASDAQ:QUBT) is an integrated photonics company, with its products designed to operate at room temperature and low power. The upside potential of the company is based on only one analyst, and the company is substantially risky. We tracked its financials from Q1, 2023 to Q2, 2024. QUBT has been growing its revenue with the exception of Q1, 2024 when the revenue growth rate declined by -77.6%.
We tracked the number of hedge funds that have had positions in Quantum Computing Inc. (NASDAQ:QUBT) from Q3, 2022 to Q2, 2024 from our database and there is nothing remarkable to see. The growth rate of the number of hedge funds with a stake in QUBT has virtually remained unchanged during this time, with Peak6 Capital Management and Citadel Investment Group being the only two hedge funds invested in the company. The former held shares worth $50,240 while the latter held shares worth $7,739 as of Q2, 2024. However, their stake value in the stock decreased by 24% and 91% from the previous quarter.
In August 2024, QUBT announced receipt of a notice from the NASDAQ that it was not in compliance with the listing requirements. The reason was that QUBT did not file its quarterly report on Form 10-Q for the period ended June 30, 2024, within time.
The company is on a deadline until December 16, 2024, to file the required financial documents to be in compliance again or face delisting from NASDAQ. QUBT attributed the delay to a recent change in its auditors. On May 3, 2024, the company dismissed its previous accounting firm, BF Borgers CPA PC, following an SEC order against the firm. Subsequently, on June 6, 2024, Quantum Computing Inc. (NASDAQ:QUBT) appointed BPM LLP as its new independent registered public accounting firm.
On October 17, the company announced that it had received a NASA contract to eliminate sunlight interference from LiDAR spectral mapping in low Earth orbit. This could help the company grow its application in space-based projects.