Investors Turn Attention from AI to Quantum Computing Opportunities

Over the past few years, artificial intelligence (AI) has captured investor interest with its potential. Companies have made headlines by claiming breakthroughs in large language models, autonomous vehicle systems, and workplace efficiency. However, with the novelty fading, investors are now seeking new avenues for growth. Enter quantum computing—a segment of the AI landscape that management consulting firm McKinsey & Co. predicts will reach a value of $1.3 trillion by 2035. This innovative computing method leverages principles of quantum mechanics to process information much faster than traditional computers.

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As discussions of the next evolutionary stage in computing heat up, executives from leading AI firms have been heralding the rise of quantum computing. Many companies are now branding themselves as pioneers in this sector, highlighting potential advantages in critical fields like healthcare, cybersecurity, and financial services.

High Interest in Quantum Computing Stocks, But Caution Advisable

Experienced investors recognize that new opportunities often arise within trending sectors. Look at the chart below to understand the performance variations in this emerging market.

RGTI data by YCharts

What stands out? Quantum computing stocks such as Rigetti Computing, IonQ, Quantum Computing, and D-Wave Quantum have vastly outperformed both the S&P 500 and Nasdaq Composite over the past year. Interestingly, these stocks experienced little price movement from January to October 2024, only to surge later on.

For those unfamiliar with these companies, it’s understandable. Each one currently generates minor revenue. This is not surprising given the current application limitations of quantum computing technologies. Although the excitement surrounding quantum computing is palpable, practical implementation remains scarce.

RGTI Revenue (Quarterly) data by YCharts

Despite this, the companies mentioned trade at valuation multiples that do not reflect their actual financial performance, characterized by low revenues and significant cash burn. Given these financial dynamics, the feasibility of these companies sustaining operations in the long run appears questionable. Instead, it may be prudent to explore other better-positioned investment opportunities.

Image source: Getty Images.

More Reliable Long-Term Investment Choices

It’s likely you’re aware of the “Magnificent Seven” stocks— Amazon (NASDAQ: AMZN), Apple, Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Meta Platforms, Tesla, and Nvidia (NASDAQ: NVDA)—which are central to the AI discourse. These companies engage in related AI applications, spanning productivity tools to semiconductor manufacturing and self-driving technologies.

However, notable advancements in quantum computing are also coming from Amazon, Alphabet, Microsoft, and Nvidia. The latter three have all developed proprietary quantum chips, while Nvidia extends its CUDA software platform to cater to quantum computing.

The significant gains from stocks like IonQ, Rigetti, D-Wave, and Quantum Computing stem from speculation about quantum computing’s potential rather than from solid financial fundamentals. Conversely, Nvidia, Amazon, Alphabet, and Microsoft possess the financial stability to develop and refine their quantum computing strategies without impacting their existing profitable AI operations.

Since these companies have already fostered successful AI enterprises, quantum computing can serve as a complementary element that could enhance their business models and position them for sustainable growth in the future.

As the Magnificent Seven stocks face pressure from the current Nasdaq downturn, their financial foundations remain intact. I believe Nvidia, Alphabet, Amazon, and Microsoft represent superior investment options compared to the speculative ventures mentioned earlier.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also serves on the board. Randi Zuckerberg, who previously handled market development at Facebook and is Mark Zuckerberg’s sister, is a board member as well. Adam Spatacco holds shares in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool endorses these companies and recommends various options, including long January 2026 $395 calls and short January 2026 $405 calls on Microsoft. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily represent the views of Nasdaq, Inc.