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Don’t invest in quantum if you don’t have the stomach for volatility

Quantum computing promises breakthroughs in limitless applications such as in the fields of cryptography and AI. However, practical applications are still years away. Nvidia CEO Jensen Huang estimates it could take 15 to 30 years, dampening investor enthusiasm and sending stocks like D-Wave Quantum (QBTS) down sharply. In today’s FA Alpha Daily, we explore the challenges and risks of investing in this emerging but uncertain sector.

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Last week, we discussed how quantum computing is often described as the next frontier of technology, capable of solving problems far beyond the reach of classical computers.

By harnessing the principles of quantum mechanics like superposition and entanglement, quantum computers can process complex calculations at speeds unimaginable with today’s technology.

The potential applications are endless, ranging from medical research and material science to cryptography and artificial intelligence.

However, the field is still in its early stages. While the technology shows immense promise, the timeline for practical, profitable quantum solutions remains uncertain.

Developing reliable quantum hardware and algorithms faces major scientific and engineering challenges.

Jensen Huang, CEO of Nvidia (NVDA), stated that practical quantum computing is likely still two decades away, estimating a timeline between 15 to 30 years, with 20 years being the most realistic estimate.

His comments dampened investor enthusiasm, causing sharp declines in quantum computing stocks, which collectively lost over $8 billion in market value.

Huang explained that while quantum computing has potential, its current capabilities are limited to niche calculations, and significant advancements are still needed before it becomes widely useful.

His timeline mirrors the lengthy development path Nvidia itself took for accelerated computing.

Despite these hurdles, companies continue to invest heavily in quantum research, betting on long-term breakthroughs.

D-Wave Quantum (QBTS) is one of the notable players in this emerging field.

The company is focused on developing and commercializing quantum computing systems, software, and services designed to address complex computational problems.

D-Wave has gained attention for its quantum annealing approach, a method suited for optimization problems such as supply chain logistics, financial modeling, and machine learning.

Unlike some competitors that focus on gate-based quantum computing, the company has carved out a niche in solving real-world problems using its annealing technology, which is currently more accessible and practical for specific use cases.

Despite its innovative positioning, D-Wave faces challenges that are common among quantum computing companies.

Like others in the sector, the company is not yet profitable, burning cash as it continues to invest in research and development and expand its customer base.

Our EEA model clearly shows this.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Take a look…

Investors are betting on D-Wave’s ability to scale its technology and attract long-term demand, but the reality is that much of this success hinges on the broader adoption of quantum computing and the timeline for its maturity.

The market’s response to the company remains highly reactive to news and external factors and Jensen Huang’s recent statement has caused the company’s stock to drop more than 40%.

Before this development, D-Wade was up more than 1000% since the start of 2024…

Huang’s comments serve as a reality check for both the industry and investors. While the future of quantum computing is undoubtedly promising, it is a long-term story.

Investors need to weigh the risks of putting their money into companies that are unprofitable today and working on technologies that may take decades to become mainstream.

This doesn’t mean these companies lack potential, it means the journey to realizing that potential is likely to be a long one, marked by volatility and uncertainty.


Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

Today’s analysis highlights the same insights we share with our FA Alpha Members. If you want to an get in-depth analysis of market trends and uncover undervalued stocks, become an FA Alpha Member today.

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