We recently compiled the list of the 12 Best Quantum Computing Stocks To Buy according to the hedge funds using the latest sentiment data. In this article, we are going to take a look at where NVIDIA Corporation (NVDA) stands against the other quantum computing stocks.
These days, artificial intelligence is one of the hottest topics on the stock market and the media. This is because of the improvements in data analysis and decision making offered by AI models. These have augmented pre AI data analysis and text production technologies, and consequently, Wall Street has piled billions of dollars into the industry.
As AI is to data science, quantum computing is to classical computing. Or at least in some aspects. The fundamental difference between a classical and quantum computer is physics. Classical computers operate under the principles of classic physics, which means that it is easy to determine whether a semiconductor’s processor is in the on (1) or off (0) state. In quantum computing’s case, a transistor’s equivalent is an elemental particle capable of existing in multiple states. So, a quantum ‘transistor’ could be on and off at the same time, to provide programmers with more flexibility to solve problems.
This ability to process more inputs means that quantum computing offers complex problems that traditional computers might not have enough capacity for. This is one reason that some estimates expect the quantum computing industry to be worth a modest $11.4 billion by 2027 despite a rapid compounded annual growth rate of 33%.
At the same time, quantum computing stocks are riskier than even traditional and typically high growth companies. This is because their products do not have sizeable markets and require considerable investment and research and development expenditure which might even take longer to recover than for biotechnology stocks.
These facts also make it trickier to analyze quantum computing stock performance since there are considerably fewer publicly traded companies to offer the convenience of simply seeing how an exchange traded fund has performed. For instance, consider the holdings of the Defiance Quantum ETF (QTUM). Some of its top holdings include software firm MicroStrategy and the memory manufacturer Micron. Neither of these companies generates material income from making products that are essential for a quantum computer to perform. Another major holding is NVIDIA Corporation, and while it does make a product for a quantum processing unit’s (QPU) quantum controller, most, if not all of its share price gains have been due to artificial intelligence.
This means that we need to analyze individual quantum computing stocks to see how they have performed recently. Heading into the year’s second half, investors have battled with high inflation, high interest rates, geopolitical tensions, turmoil in banking, and euphoria surrounding artificial intelligence since 2022.
Some quantum computing stocks that are commonly known are Rigetti Computing, Inc. (NASDAQ:RGTI), IonQ, Inc. (NYSE:IONQ), and D-Wave Quantum Inc. (NYSE:QBTS). Over the past five years, their shares have lost 89%, 24%, and 89%, respectively. Mind you though, this doesn’t mean that quantum computing stocks never go up. For instance, take the example of IonQ. The firm listed its shares for trading in October after a merger, and between October 8th and November 19th, the stock soared by a whopping 233%. For comparison, Wall Street’s AI darling NVIDIA’s shares have gained 239% over the past twelve months.
So, the next question to ask is, what happened to this quantum computing stock? Well, part of the reason is a Goldman Sachs investment note that was released in November 2022. The note wondered when businesses would start adopting quantum computing into their operations, and whether the company’s technology roadmap could align with this shift, as uncertainty persisted over “which forms of quantum computer ultimately captures market share,” according to analyst Toshiya Hari. After losing 14% in the wake of Hari’s comments, the stock would proceed to bottom out over the new year in January, but its performance graph changes when we zoom into 2024’s performance. April 2024 seems to have been the month for IonQ’s shares as the stock is up by 17% since the 19th.
Photo by Javier Esteban on Unsplash
Our Methodology
To make our list of the best quantum computing stocks, we first made a list of pure play quantum computing companies and those that make crucial products for the industry. These stocks were ranked by the number of hedge funds that had held shares according to the last round of 13F filings. 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).
NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors In Q1 2024: 186
Wall Street’s artificial intelligence darling NVIDIA Corporation (NASDAQ:NVDA) is also an important quantum computing company. Its Hopper Superchip is the only GPU in the world that is marketed to work with a quantum computer, and in May 2024, NVIDIA Corporation (NASDAQ:NVDA) saw Hopper and NVIDIA’s CUDA-Q software complement make inroads into several global quantum supercomputers.
By the end of this year’s first quarter, out of all the hedge funds tracked by Insider Monkey, 186 had owned stakes in NVIDIA Corporation (NASDAQ:NVDA). One of the biggest stakeholders is Rajiv Jain’s GQG Partners as it owns 13.3 million shares that are worth $12 billion.
As a result, NVDA ranks second among the 12 best quantum computing stocks to buy now. You can visit 12 Best Quantum Computing Stocks To Buy to see the other quantum computing stocks that are on the hedge fund radar. NVDA is now a $2.75 trillion company and trades at a forward PE of 41. Assuming that its extremely high growth rate continues for a few more quarters, this isn’t an expensive stock. This is a big assumption though. The market is assuming that NVDA can earn $70 billion over the next 12 months, $100 billion in 2 years, $150 billion in 3 years, and then grow those profits at high single digits for the foreseeable future (the same rate S&P 500 companies grow their earnings annually). I think the probability of this happening is less than 50% as NVDA needs to defend its moat for a couple of decades which is a very long time in the tech industry. Intel couldn’t defend its moat for two decades and now trades at less than NVDA’s 2026 expected earnings. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Disclosure: None. This article is originally published at Insider Monkey.