Shares of quantum computing companies popped after the U.S. government announced it would provide $2 billion in grants to nine firms under the CHIPS and Science Act. The Wall Street Journal was first to report (1) the news.
Quantum computing could eventually play a major role in areas like national defense, energy systems and biopharmaceuticals, among others. The new government grants will be used to “strengthen America’s position in this critical frontier technology,” according to the National Institute of Standards and Technology (NIST (2)).
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The NIST also said it would take a minority, non-controlling stake in each company. And this has Wall Street excited, with shares of quantum-computing companies jumping as high as 33% after the announcement.
Shares of IBM (NYSE: IBM) — which received the largest grant — rose 12%. D-Wave rose 33%, Infleqtion rose 31% and Rigetti rose 30%. Even quantum firms that weren’t part of the announcements saw gains (3).
But, while the government is dipping its toes into quantum, individual investors may still want to exercise caution.
Which quantum firms will benefit
While still a Letter of Intent, IBM would be the largest beneficiary, receiving a $1 billion grant, while GlobalFoundries would receive $375 million. Both companies will use the grant money to help establish domestic manufacturing capacity for advanced chips used in quantum systems.
While the grant money is a drop in the bucket for a tech giant like IBM, the move is a direct intervention in the quantum space by the government, showing confidence in the technology’s future potential.
IBM, for its part, will use the CHIPS incentive to support a new IBM company called Anderson (4), which will operate as America’s first pure-play quantum foundry. IBM will also contribute $1 billion of its own money to match the grant.
“It will help the nation solidify its leadership at the center of a thriving new quantum industry that is estimated to generate up to $850 billion in economic value by 2040 and spur American economic growth while also bolstering national security,” IBM said in a release (4).
Other beneficiaries include D-Wave Quantum, Rigetti Computing, Infleqtion, Atom Computing, PsiQuantum and Quantinuum, receiving about $100 million each. Australian startup Diraq, would receive around $38 million.
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What’s the deal with quantum?
Quantum computers are based on the principles of quantum physics — basically, this will take computing to a whole new level, processing complex problems exponentially faster than the computers we use today. For example, Google claims its quantum chip (5), called Willow, was able to solve a complex mathematical problem that would take a traditional computer 10 septillion years.
“Quantum computers have the potential to solve certain problems in minutes or hours that would otherwise take conventional machines millennia to complete,” according to IBM (6).
Classical computers use binary bits (0s and 1s), while quantum computers use quantum bits (qubits) that can exist as both a 0 and 1 at the same time. But qubits are extremely fragile and face major obstacles to commercialization.
Success in building physical quantum computers would be a game-changer in areas such as cybersecurity, defense, pharmaceuticals, clean energy, engineering and financial modeling — to name a few. But it’s also a matter of keeping up with the Jones’. China is heavily investing in quantum, with its 15th Five Year Plan (7) (the government’s national economic blueprint) designating quantum as the country’s first of seven “future industries.” It’s estimated that China’s government has already invested about $15 billion in quantum technology (8).
Should you invest?
Quantum computing isn’t a new concept, but the technology is still in its infancy and requires massive, long-term investments. That means investing in quantum is highly speculative, based on future potential.
While Wall Street is excited about the U.S. government’s foray into quantum, individual investors may want to exercise caution as quantum technology companies face major hurdles ahead, including hardware instability and rapid obsolescence.
And it could be years before there’s any payoff. Back in January, Nvidia CEO Jensen Huang said (9) the practical use of quantum computers is likely two decades away.
Still, there’s potential for massive long-term returns. A report from The Quantum Insider predicts (10) that quantum computing will contribute $1 trillion in value creation by 2035, with quantum computing vendors generating $50 billion in revenue by 2035.
“If you are thinking that you want some sort of near-term immediate return from investing in some hot quantum stock, I don’t think that is reality,” Dan Romanoff, senior equity research analyst at Morningstar, said in a note (11).
But, he adds, “you should keep in the back of your mind also that this probably is going to be real and pretty meaningful eventually.” However, he recommends that investors “tread carefully” when it comes to pure-play quantum stocks.
Quantum may be better suited for long-term investors who can handle market volatility, though it’s also possible to add quantum to your portfolio through ETFs.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
The Wall Street Journal (1); National Institute of Standards and Technology (2); CNBC (3); IBM News Room (4); Fortune (5); IBM (6); 12371 (7); The Quantum Insider (8), (10); Reuters (9); Morningstar (11)
This article originally appeared on Moneywise.com under the title: Here’s why Wall Street is so chuffed about Trump investing $2 billion in quantum computing companies
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