Breakthroughs in the field of quantum computing have recently boosted shares of Alphabet and IonQ.
One pocket of the artificial intelligence (AI) field that’s getting a lot of attention right now is quantum computing. Although there are many companies researching quantum computing, only a limited number have made any measurable progress.
Two companies that are becoming leaders in this new field are IonQ (IONQ 7.89%) and Alphabet (GOOG 0.81%) (GOOGL 0.76%). After the market closed on Dec. 13, IonQ shares have soared 173% this year — absolutely beating Alphabet’s return of 36%.
Could IonQ be on the verge of leapfrogging one of the most influential players in the tech world? Let’s dig into the details of how each company is advancing quantum computing, and from there assess which stocks might be better buys.
What is quantum computing?
At its core, quantum computing is a technology that exploits quantum mechanics to achieve new levels of speed and efficiency in solving complex problems. By today’s standards, data in computers is stored in binary bits (0s or 1s). In contrast, quantum computers rely on qubits (quantum bits), which essentially allow data values to exist in different states at the same time – a phenomenon known as superposition.
Without getting too technical, the idea behind quantum is that these computers should have the ability to process data and derive solutions to problems that could take years or even decades to figure out using today’s existing infrastructure.
Image source: Getty Images.
A look at the IonQ
IonQ specializes in a niche area of quantum computing known as trapped ion technology. Simply put, IonQ uses lasers to manipulate ions, which represent quantum bits. According to the company, this approach can result in lower error rates in data processing – thereby speeding up processing times for extremely sophisticated applications.
Currently, IonQ relies on a robust partner network with cloud computing providers such as Microsoft, Amazonand Google. Essentially, software developers leveraging these cloud networks can access IonQ’s quantum computing services — saving them the time it takes to research and build this type of hardware themselves.
On the surface, it might look like IonQ is on the verge of a pretty profitable disruption. However, a quick look at the company’s financial statements tells a different story.
While the slope of IonQ’s revenue trend line is increasing, the company still generated just $37.5 million in sales last year. To me, this subtly means that quantum computing is still very much an emerging topic and that the demand for the technology is not yet very robust. Additionally, IonQ is nowhere near profitable—in fact, the company’s net losses are actually increasing despite accelerating revenue.
IONQ Revenue (TTM) data according to YCharts
A look at the alphabet
Alphabet’s subsidiary Google is known primarily for its dominant presence among online search engines. However, Google has many special projects behind the scenes that rarely get the spotlight. One such area is quantum computing, where Google has made notable progress over the past few years.
In 2019, Google’s quantum processor known as Sycamore solved a problem in 200 seconds that it estimated would take a supercomputer 10,000 years. In light of this breakthrough, Google claimed quantum supremacy — or an idea that demonstrates the advantages of quantum computing over today’s computing standards.
Earlier this month, Google announced another development from its quantum plan — a chip the company calls Willow. According to the press release, Willow’s architecture enables more efficient control of qubits — allowing for lower error rates, even when increasing numbers of qubits enter the equation.
In layman’s terms, the Willow chip is so powerful that it can solve a benchmarking problem in less than five minutes that would take today’s best supercomputers 10 septillion years.
The bottom line
While IonQ and Alphabet have made some significant strides in quantum computing, it’s clear that both companies have a long way to go. Quantum computing is far from a commercially available technology and likely won’t become mainstream for at least a decade (at the earliest). I think it’s very likely that IonQ, Alphabet, and their competitors will continue to spend significant sums on research and development (R&D) for further quantum initiatives over the next few years.
That being said, Alphabet has the luxury of being able to fund these growth efforts without sacrificing its main sources of revenue from advertising, search and cloud computing. In contrast, IonQ’s financial resources are limited, and the company’s approach to quantum computing could still be argued as speculative at the moment.
For these reasons, I see Alphabet as a clear winner, despite the stock not moving as much on news of its breakthroughs in quantum computing.