Quantum Computing Stocks Surge Amid AI Hype, Raising Concerns Over Speculative Investing

Interested in Quantum Computing but Can't Decide Which Stocks to Buy? You Might Want to Check Out This ETF. | The Motley Fool

Interest in quantum computing stocks is on the rise, but choosing which one to invest in is a daunting task. During the past few months, a new pocket of the artificial intelligence (AI) realm has come into the spotlight. Investors have been cheering on quantum computing stocks, and companies such as IonQ, Rigetti Computing, and Quantum Computing have drawn a good deal of attention. Whenever an exciting new opportunity starts to become mainstream, it can be tempting to follow the crowd and buy into the narrative. However, this type of thinking is aligned with an investment philosophy known as the Greater Fool Theory -- in other words, you hope to sell to an unknowledgeable investor willing to overpay even more for your shares than you did. The fact is that each of the companies above were penny stocks for most of last year, and only began to take off once the idea of quantum computing started to become more of a talking point among AI enthusiasts. If you are considering an investment in quantum computing, I think you're better off choosing a diverse platform such as an exchange-traded fund (ETF). Below, I'm going to explore the Defiance Quantum ETF (QTUM 1.42%) and assess why this could be a better option than some of the speculative names mentioned above. ETFs can be a great option for investors who do not wish to manage their portfolio actively. Even if you're interested in a specific area but are unsure about what stocks to invest in, ETFs are still a viable option. Some ETFs offer specific themes, and in the case of the Defiance Quantum ETF, the primary focus areas are AI and quantum computing. According to the latest available data, the Defiance Quantum ETF holds top AI stocks including Palantir Technologies, Nvidia, and Taiwan Semiconductor Manufacturing, defense sector names including Northrop Grumman and Lockheed Martin, and companies exploring quantum mechanics including Alphabet and International Business Machines. In addition, the ETF does also hold positions in smaller, speculative stocks including Rigetti, IonQ, and D-wave Quantum. Despite holding positions in some riskier small-cap names, I see an investment in the Defiance Quantum ETF as a solid choice for those interested in quantum computing stocks given its broad exposure to adjacent industries such as semiconductors, enterprise software, and defense. The diverse set of stocks in the ETF provides some degree of insulation from individual stocks that may experience outsize volatility from time to time. The chart below illustrates the price gain of the Defiance Quantum ETF during the past year. For much of 2024, the ETF experienced fairly steady gains -- quite unsurprising given AI remained a major tailwind in the stock market last year. However, during the past few months of the year the ETF experienced notable valuation expansion. This is also unsurprising considering many of the stocks mentioned in this article experienced significant run-ups toward the end of 2024. Bearing that in mind, the Defiance Quantum ETF is trading just pennies below its 52-week high right now. While it appears there is a good bit of momentum fueling the ETF's price, I wouldn't necessarily shy away. That's because I think it's highly unlikely that the portfolio managers for the ETF will make any major changes to its core holdings. Many of the stocks in the Defiance Quantum ETF are considered leaders in the AI industry, and quantum computing represents just another tangential opportunity. For these reasons, I'd be more inclined to invest in the Defiance Quantum ETF over any single quantum-focused stock. I think a prudent approach to investing in the Defiance Quantum ETF is to use dollar-cost averaging over a long-term horizon. This method will allow you to gain increasing exposure to high-growth markets, all while maintaining a high degree of diversification and reducing exposure to any one particular business that could become vulnerable at the flip of a switch.

Prediction: Quantum Computing Will Be the Biggest Theme in Artificial Intelligence (AI) in 2025. But Does That Mean You Should Invest in It? | The Motley Fool

Quantum computing stocks are soaring, but do the rising stock prices make sense? Over the last couple of years, technology stocks have captivated the investment world thanks in large part to breakthroughs in artificial intelligence (AI). Within the AI realm, semiconductor stocks in particular have benefited greatly. This is due to the fact that semiconductor companies such as Nvidia, Advanced Micro Devices, and Broadcom make important infrastructure such as graphics processing units (GPUs) and network equipment that are used in data centers, and without them, generative AI would be more of a lofty idea than a reality. While chip stocks should remain a popular choice for investors, I see a new theme emerging in the AI landscape. Over the last few months, quantum computing stocks have witnessed some outsized gains -- putting them on the radar of curious investors. Below, I'm going to explore what is driving this pronounced buying activity and assess if quantum computing is an area you should explore in 2025. Quantum computing is an interesting concept, in theory. In very simple terms, quantum computers leverage technology known as quantum mechanics, which is believed to enhance applications such as machine learning to solve extremely sophisticated, time-consuming problems that today's computers simply cannot do. Some of the more notable quantum computing stocks that have become mainstream recently are IonQ (IONQ 10.84%), Quantum Computing (QUBT -6.69%), and Rigetti Computing (RGTI -4.90%). According to their websites, these companies have partnered with major technology enterprises including Nvidia, Amazon, Alphabet, Microsoft, and even government operations such as NASA and leading healthcare systems such as Johns Hopkins. The chart below illustrates the stock price movements for IonQ, Quantum Computing, and Rigetti Computing during 2024. Before getting enamored by these market-beating gains, zoom out and look at the bigger picture. Do you see what I see? For almost the entirety of 2024, none of these stocks moved... at all! It wasn't until around October and November that all three stocks started moving essentially in tandem. So, what happened? As a long-term investor, I am more aligned with stocks that experience steady gains over time as opposed to more volatile "peak and valley" trends. Broadly speaking, I tend to think that stocks experiencing abnormally high levels of buying or selling make sense in a finite number of scenarios. For example, if a small biotech company is granted approval from the Food and Drug Administration for a new, breakthrough medication, then I think it's appropriate for the stock to rise significantly. The same can also be true if a pharmaceutical company experiences a setback during a clinical trial. However, this is far from the case with the quantum computing stocks above. While I cannot point to one singular reason as to why these stocks are soaring, I do think I've uncovered some peripheral details that are playing a role in their ongoing price appreciation. Back in 2020, you may remember that shares of GameStop began to unexpectedly soar. As it turns out, the surge in GameStop was a short squeeze, and the catalyst sparking this abnormal trading volume was traced back to a forum on Reddit called r/wallstreetbets. While the GameStop saga is ancient history, r/wallstreetbets remains fertile ground for investors to chat about stocks in an anonymous way. In my opinion, the overwhelming majority of stocks covered on r/wallstreetbets are extremely speculative. In recent months, there have been numerous mentions of IonQ, Rigetti, and Quantum Computing all over Reddit. In fact, one post from a couple of months ago within r/wallstreetbets that was titled "My 100x companies" received over 400 responses -- and the first company on this user's list was (wait for it!) IonQ. Outside of Reddit, there have also been some intriguing updates on quantum computing technology that have come out of big tech. Specifically, Google announced a major breakthrough in its new quantum Willow chip. Meanwhile, IonQ also announced that it is currently running tests on Nvidia's CUDA-Q quantum software. All of the activity detailed above has occurred within the last two months. I do not find it coincidental in the slightest that the pronounced buying activity in the quantum computing stocks I've explored in this piece overlaps with these news updates and heightened interest found in online communities. While IonQ, Quantum Computing, and Rigetti present interesting opportunities, none of them have really scaled yet -- despite their partnerships with big tech and the federal government. The reason for this is that quantum computing has almost no tangible use cases right now. This is precisely why I said in my introduction that the technology is interesting "in theory." To me, investors are finding reasons to buy quantum computing stocks that are disconnected from reality -- speculatively labeling the technology as the "next big thing" in AI. However, it's pretty clear that the trends seen in the chart above underscore the meme stock nature of names like IonQ, Rigetti, and Quantum Computing. I think there is a good chance that the momentum fueling these names could carry over into 2025, but that doesn't make these stocks a prudent investment opportunity. If you're interested in gaining exposure to quantum computing, I'd suggest investing in names such as Alphabet or IBM. While both companies are making headway in quantum computing, neither one is mortgaging the future of their respective businesses on this technology. Looked at in a different way, if IonQ, Rigetti, or Quantum Computing fail to progress in quantum mechanics, each company will be hard-pressed for growth. The same cannot be said for Alphabet or IBM, which dominate in several different fields -- including advertising, cloud computing, IT infrastructure, and many more.

Is Quantum Computing Stock a Buy Right Now? | The Motley Fool

Over the last few months, a new theme has emerged in the artificial intelligence (AI) realm. Quantum computing has attracted a lot of enthusiasm from investors, and several companies attempting to commercialize and advance this cutting-edge technology have experienced rapid gains in their stock prices. One such company, aptly called Quantum Computing (QUBT 13.32%), has recently come into the spotlight: In the last three months, its shares have soared by about 2,400%. Yet despite the potential for quantum computing (the technology) in the overall digital landscape, I have some major questions about Quantum Computing (the company). Is it actually on the verge of playing a leading role in AI's next big megatrend, or is it a stock that should best be avoided for now? It's rare for a stock to rise as much as Quantum Computing stock has during such a short time period. It's even more unusual when the company in question is relatively unknown -- which is the case here. After digging through some of Quantum Computing's filings with the Securities and Exchange Commission (SEC), I think my suspicions are valid. Quantum Computing was founded in 2001 under the name Ticketcart, operating a business that originally focused on selling ink-jet cartridges for printers manufactured by Canon and Hewlett Packard. In 2007, Ticketcart pivoted its business after it acquired Innovative Beverage Group and subsequently changed its name to Innovative Beverage Group Holdings (IBGH). As the name implies, it then focused on beverage distribution. By 2013, IBGH had gone out of business and was later sued by a prominent shareholder who alleged that management had "allowed the Company's assets to be wasted." After the legal turbulence settled in 2018, the company essentially pivoted again, rebranding itself as Quantum Computing Inc. Four years later, in the summer of 2022, Quantum Computer acquired QPhoton, a developer of systems and technologies in the quantum photonics space. That's the company's core business nowadays, but with little to show for it in terms of revenue-generating contracts. To be fair, even the largest companies in the world find themselves enmeshed in lawsuits from time to time. However, such cases usually involve allegations over intellectual property or adjacent matters. Pivoting from one significantly different idea to another doesn't inspire confidence, and I find IBGH's decision to change its name to Quantum Computing to be eerily reminiscent of Long Island Iced Tea's move to rebrand itself as Long Blockchain back when crypto started getting popular almost a decade ago. If all that isn't enough to make you raise your eyebrows, you should check out this stock chart. One year ago, Quantum Computing was an unknown penny stock. As I write this, shares currently trade for $16 and the company boasts a market cap of $2.1 billion. In fact, the stock didn't even really begin to break out until about three months ago. During this time, the company has witnessed abnormal valuation expansion and its shares have gotten expensive. How expensive? Well, considering Quantum Computing's trailing-12-month revenue is only about $386,000, its price-to-sales multiple is roughly 5,400. Developing quantum computing systems requires significant capital investments in research and development, as well as engineering talent. Given that Quantum Computing is barely generating any revenue, I think it's highly likely the business will be burning cash heavily for some time. As such, the company could take advantage of its suddenly soaring stock price to conduct secondary offerings to raise capital. If management does take that step, prior investors will experience some degree of dilution. That would particularly impact those who buy in at the current valuation. Quantum Computing generated $14.6 million of much-needed cash this way in the first three quarters of 2024. Future cash grabs may get more burdensome. When AI emerged as the market's next big megatrend a couple of years ago, shares of a company called C3.ai witnessed a remarkable surge. I personally believe that one reason for that run-up was because C3.ai's ticker symbol was "AI." Back in 2014, Google purchased Nest Lab, which makes smart-home appliances such as thermostats. On the day that plans for the acquisition were announced, shares of a penny stock called Nestor skyrocketed. The reason? Nestor's ticker symbol was "NEST," and novice investors confused it for the company Google was acquiring. The reason I bring these examples up is because it's important to understand that, on occasion, unsophisticated investors connect dots that aren't really there. While the idea of quantum computing is intriguing, the company Quantum Computing appears to be benefiting largely from an interesting narrative and the good luck of having the same name as an emerging technology in the AI arena. I think Quantum Computing stock should be avoided. The valuation of the company is stretched, and given its questionable corporate history, it's hard to guess what twists and turns may be in store.