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October 27, 2025

Think Twice Before Taking the Quantum Leap

From AI to robotics to blockchain, we are living through a period of accelerated technological change. Investors who got in very early on some of these trends—by investing in stocks like NVIDIA (NVDA) and Tesla (TSLA), or cryptocurrencies like Bitcoin—have in some cases experienced life-changing gains.

This is an era of asymmetric returns in which relatively small investments in the right opportunities have turned into fortunes. It is therefore not surprising that investors are on the lookout for the next frontier technology with massive upside potential.

Lately, attention has turned to quantum computing—a field promising to reshape everything from cryptography to drug discovery. Four pure-play quantum stocks in particular have captured both market excitement and investor capital this year: IonQ (IONQ), Rigetti Computing (RGTI), D-Wave Quantum (QBTS), and Quantum Computing (QUBT).

These stocks now have market capitalizations ranging from about $2 billion to $20 billion, depending on the day. They have delivered eye-popping total returns over the past year ranging from 300% to 3,100%.

IONQ, RGTI, QBTS, QUBT

(Total Return - Last 12 Months)

True promise… or a lot of hype?

While we approach every investment opportunity with a healthy skepticism, we have absolutely nothing against speculative growth investments in and of themselves.

For example, we recently highlighted BitMine Immersion Technologies (BMNR) as a speculative investment with an interesting risk-reward profile (Is BitMine the Next Crypto Superstar?).

Our thinking around these types of investments is just that investors should understand exactly what they are getting into as far as the elevated downside risk potential and high volatility. They should also be judicious about how much capital they are actually willing to risk on an investment of this nature.

If one is making any kind of highly speculative investment, one should be mentally and financially prepared for total loss.

That said, not all speculative growth investments are created equal.

While they all carry a relatively high degree of uncertainty, often based on uncertainty as to how technological trends will evolve, some ideas might have stronger foundations than others.

Quantum computing is definitely exciting. It taps into one of the most mysterious areas of physics, which gives this emerging slice of the investment world an almost magical quality.

Like nuclear energy, there is something miraculous about harnessing one of nature’s most elusive forces. The possibilities seem limitless.

But investors need to distinguish between technological promise and investable reality.

The quantum stocks that investors have been piling into do have some good things going for them—like potentially valuable intellectual property and relationships with larger firms. However, as businesses they tend to be quite underdeveloped relative to their valuations.

For perspective, even the most established of these companies, IONQ, which has a market cap around $20 billion, remains in the early stages of commercialization. Analysts currently expect IONQ to generate less than $100 million in revenue this year, while incurring operating losses around $300 million.

IONQ is trading around 200 times 2025 sales (and losing money). In contrast, a highly profitable AI stock like NVDA is trading just over 20 times sales (with approximately 65% operating margins).

That doesn’t make the opportunity illegitimate, but it does highlight just how immature the business is, despite the high valuation.

From an investment perspective, the comparison between quantum computing and AI is illuminating.

Unlike AI, which has scaled rapidly on existing infrastructure, quantum computing hardware requires breakthroughs in physics, engineering, and materials science before it can reach commercial scale.

While an AI stock like NVDA is now profitably selling real equipment to third parties who are putting it to productive use, the revenue associated with quantum computing stocks is more akin to payments made by larger enterprises or government agencies to conduct basic research.

None of these companies have commercialized products in any meaningful sense. They are, in essence, research and development laboratories.

What about quantum ETFs?

Given the high degree of uncertainty as to which quantum stocks will ultimately succeed, some investors might be tempted to take a basket approach and effectively own them all, perhaps through a sector-specific fund.

Here again, caution is warranted. The largest quantum computing Exchange Trade Fund (ETF) is the Defiance Quantum ETF (QTUM). It has nearly $3 billion in assets under management.

The quantum stocks mentioned above are held within this fund, but if one looks beneath the hood at the ETF’s holdings, one immediately notices that the fund primarily consists of large-cap technology stocks that are only tangentially linked to the quantum theme.

QTUM Top Holdings

(Source: Defiance ETFs)

The problem facing a dedicated investment strategy like this is that there are so few pure-play quantum stocks.

To populate a quantum fund, it appears necessary to use an expansive definition of what constitutes a quantum-related investment. As a result, a stock like Oracle (ORCL) is as highly represented in the fund as IONQ or QBTS.

ORCL, a position within our American Resilience Model Portfolio, does have some fledgling activity in the quantum area. But this is certainly not material to its financial performance at the moment, nor is it central to the core investment thesis of most ORCL investors.

Given that QTUM is for the most part a more general technology fund, it is not surprising that its performance has largely mirrored the tech-heavy Nasdaq-100 Index throughout most of its existence.

Only over the past year has its relatively small exposure to the explosive returns of pure-play quantum stocks caused performance to visibly depart from the index, as reflected by the Invesco QQQ ETF (QQQ).

QTUM vs. QQQ

(Total Return — 2019 to present)

Investors interested in gaining some limited exposure to the quantum pure-plays could buy the fund, but they should understand the small role these stocks continue to play in the overall portfolio.

To be fair, if the quantum pure plays deliver the type of extraordinary returns over the next year as they did over the past year, it could once again lead to substantial outperformance for this fund.

But investors should be realistic. It is a lot easier for a stock like RGTI to go from a $200 million market cap to a $12 billion market cap over the course of a year than for it to grow another 60 times from its current level.

If the stock did appreciate another 60-fold, its market cap would grow to more than $700 billion, making it one of the most valuable companies in the world. Note that RGTI has approximately 140 employees and is expected to generate sales of just over $20 million next year.

For perspective on what a stock with a nearly $1 trillion market cap typically looks like, ORCL currently has an $800 billion market cap. ORCL has 160,000 employees and is expected to generate more than $80 billion in revenue in the next fiscal year.

So what actually is quantum computing?

This may be a good moment to consider what all the fuss is about in the first place—and take a brief detour into one of the most perplexing branches of science.

Quantum physics stretches the limits of ordinary human comprehension. This no doubt gives the idea of investing in the quantum realm a certain appeal, as though one is tapping into one of the dark secrets of the universe.

Quantum computing is based on quantum physics, which is the branch of science that describes how the smallest particles in the universe behave. At the atomic scale, the rules are very different from the everyday world.

Don’t ask us how, but a particle like an electron can exist in multiple states at once. Physicists call this property superposition. Two particles can become entangled, meaning a change in one instantly affects the other, even across long distances.

Quantum computers are designed to use these strange properties to perform calculations.

Instead of the 1s and 0s of classical computers, they use qubits, which can be both 1 and 0 at the same time. This allows a quantum processor to explore many possible outcomes simultaneously, rather than one at a time like a traditional microchip.

The upshot is that quantum computers can potentially solve certain problems exponentially faster than classical computers. The dream is that they will one day be able to perform tasks in a reasonable time frame that would take even the most powerful supercomputers millions of years to complete.

Why it’s still so early

Quantum computers are extraordinarily delicate systems. Their power comes from qubits—quantum bits that can exist in multiple states at once—but that same property makes them highly unstable.

Tiny vibrations, stray electromagnetic fields, or slight temperature fluctuations can cause what is known as decoherence, collapsing a qubit’s state and destroying the calculation.

To prevent this, most quantum machines operate at temperatures only a few thousandths of a degree above absolute zero, which represents the complete absence of heat (approximately 460 degrees below zero Fahrenheit). They have to use complex systems to shield them from noise and heat, and, even then, errors are frequent.

Of course, if these engineering challenges around stability and scalability are one day solved, quantum computers could redefine what is computationally possible across physics, cryptography, and artificial intelligence.

Google’s breakthrough

Quantum computing may represent the long-term future of computing. It also may not. It could also just be limited to certain niche applications related to scientific research.

Assuming quantum computing does have long-term viability, it is very difficult at this stage as an investor to know which companies will actually benefit from it.

Simply having the word “quantum” in the company name is certainly no guarantee of success, although we suspect that many of the investors who have piled into quantum stocks over the past year are investing largely on that basis.

Last week, after reaching new highs a few days prior, quantum stocks traded down sharply when news came out on a breakthrough in quantum research by Alphabet (GOOGL), the parent company of Google.

Google’s Quantum AI division announced an important milestone. Its superconducting-qubit chip, called Willow, ran an algorithm that reportedly completed a calculation around 13,000 times faster than the world’s fastest classical supercomputer.

What makes this interesting is that the computation is verifiable. The experiment was designed so another quantum machine could reproduce the result or a corresponding experiment could validate it.

This demonstration of the first-ever verifiable quantum advantage with our Quantum Echoes algorithm marks a significant step toward the first real-world applications of quantum computing. As we scale up towards a full-scale, error-corrected quantum computer, we expect many more such useful real-world applications to be invented. - Google Quantum AI (10/22/2025)

The likely reason that quantum pure-play stocks sold off on news of Google’s progress is that it draws attention to the possibility that much larger technology firms may ultimately be the ones who succeed in monetizing the quantum opportunity.

Given the magnitude of the scientific challenges here, investors should consider which firms have the financial and technical resources to make quantum computers a commercial reality.

Who is most likely to prevail? A company like GOOGL with a $3 trillion market cap, 190,000 employees, and expected operating income this year of $130 billion? Or money-losing start-ups with a handful of scientists and relatively trivial revenue?

It is possible that the quantum pure-plays could get acquired by larger firms interested in whatever intellectual property they have developed.

Yet at the same time, it may be much more cost-effective for the larger firms to hire their own scientists and invest in their own research and development efforts, rather than spend billions of dollars on acquisitions.

Will the government step in?

Investors in quantum stocks got some relief the day following the Google announcement when The Wall Street Journal reported that quantum computing companies were “in talks to give the Commerce Department equity stakes in exchange for federal funding.”

The implication was that quantum stocks may get a benefit from Trump administration involvement in this strategic area, similar to the recent arrangement with Intel (INTC), in which the government was awarded a nearly 10% non-voting stake in the company related to previously awarded grants.

While potential government support could be a positive, the reported scale of potential government involvement struck as quite low. The article referenced potential “minimum funding awards from Washington of $10 million each.”

These companies now have multi-billion dollar valuations and in some cases are burning hundreds of millions per year. Even if the funding awards are multiples of $10 million, it would be relatively insignificant in the scheme of things.

Main takeaways

Investors with high risk tolerance are right to consider intelligently sized allocations to more speculative opportunities. But they should still be selective.

Quantum computing is exciting, and quantum stocks have certainly soared. We are open-minded, especially when it comes to novel and rapidly changing technologies.

From our perspective, however, there is not a clear or compelling thesis to commit capital to these names, which have already achieved lofty valuations, beyond the vague promise of a new technology.

Investors looking for speculative opportunities with high upside potential are potentially better served by spending time on the crypto opportunity set. We have addressed a number of these and look forward to doing more work in this area.    

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