Quantum computing stocks proved a lucrative bet this year – but experts are convinced they’ll find it incrementally more difficult to replicate their performance in 2025.
Pure-play names like IonQ Inc (NYSE: IONQ), Rigetti Computing Inc (NASDAQ: RGTI), D-Wave Quantum Inc (NYSE: QBTS) – all have seen their stock prices increase by more than tenfold over the past 12 months.
But analysts recommend that investors take profit in these names now as they are unlikely to have a particularly strong 2025.
Why did quantum computing stocks soar in 2024?
Much of the strength in quantum computing stocks in recent weeks have been related to Google’s breakthrough.
The tech titan introduced a state-of-the-art quantum chip it’s calling Willow this month that can “reduce errors exponentially as we scale up using more qubits.”
Still, Paul Meeks of Harvest Portfolio Management remains unimpressed as it’s too soon to decipher the future of these companies.
“Any kind of evidence that impacts financials is way, way, way, out in the future. What are they going to use it for and is it really a money maker? That’s going to drive the results and valuation,” he said in a recent interview.
It’s too early to pick quantum computing winners
Paul Meeks attributes a 65% year-to-date gain in the Defiance Quantum ETF to investors’ desire to book an early position in the next big technology trend.
But he does not see it as an exciting investment proposition for the coming year as the entire debate around quantum computing is not new to the Wall Street.
In fact, talks of quantum computing among corporations first emerged as soon as a decade ago.
Meeks agreed that quantum computing could someday play a role in powering extensive data centres. But that “day”, he noted, is years, if not decades, into the future for now.
Others, including Greg Bassuk – the chief executive of AXS Investments also doesn’t expects significant breakthroughs in quantum computing in 2025.
How to invest in quantum computing?
Baird strategist Ted Mortonson also currently sees the pure-play quantum computing stocks in the “speculation overexuberance stage.”
A better way to bet on quantum computing is to invest in the mega-cap technology names, he told clients in a recent report.
When you have this huge investment cycle on next generation technology, you have to play companies that have massive free cash flow, or a monopoly in their core business.
Google-parent Alphabet Inc (NASDAQ: GOOGL) falls in that category as it’s working on a new quantum chip but offers ample exposure to artificial intelligence and a high-margin advertising business as well.
Google stock is up 50% versus its year-to-date low at writing.
Unlike pure-play quantum computing stocks, shares of this tech behemoth pay a dividend yield of 0.41% as well that makes them all the more exciting to own for the long term.
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