Forget IonQ: 3 Quantum Computing Stocks to Buy Instead
Quantum computing has captured the imagination of investors and tech enthusiasts alike, promising to revolutionize everything from drug discovery to cryptography. The intense spotlight has made a market darling out of IonQ (NYSE: IONQ), a pure-play quantum computing company. Even after a 45% price drop from its yearly highs last summer, the stock has more than doubled over the last year and trades at a mind-blowing 113 times sales.
IonQ may have a stellar long-term future ahead, but it's still a highly speculative investment. It runs a deeply unprofitable business model with more question marks than exclamation points, and the company has yet to ship a functioning system. The nascent industry looks risky in this early stage, and IonQ doesn't have a Plan B ready in case its research or system-building efforts go wrong. Therefore, I'd rather look at more stable alternatives in the field of quantum computing.
On that note, here are three companies dabbling in quantum computing as a side gig to far more robust core businesses. This way, you can gain exposure to this cutting-edge technology while also enjoying the benefits of a diversified and proven business platform.
1. Intel
Let's start with semiconductor giant Intel (NASDAQ: INTC). Many investors see quantum computing as a serious threat to old-school digital computers, but Chipzilla is facing the challenge head-on. The company has been researching quantum computing since 2015 and shipped its Tunnel Falls quantum system with 12 qubits (quantum computing units) to research partners last year.
Broader business model: Intel, a leading semiconductor company, is expanding into quantum computing through its research and development initiatives. Its quantum efforts are backed by its foundational semiconductor business, providing financial stability and extensive R&D resources. The company actually tweaked a manufacturing line for standard semiconductors to crank out the Tunnel Falls system. If Intel can scale this approach up to a commercial mass-market volume, those chip-building facilities may become a game-changing competitive advantage.
Financial health: Intel is building a lot of manufacturing infrastructure right now, so its balance sheet has seen better days. Still, IonQ can't hold a candle to Intel's $11.5 billion of annual operating cash flows and $7 billion in cash reserves. Cash from the client computing, data center, and internet of things solutions are financing its forays into quantum computing.
Industry position: This company essentially built the semiconductor industry from scratch, and it remains a leading competitor nearly six decades later. With its dominant position in the sector, Intel's exploration of quantum computing benefits from its unmatched manufacturing capabilities and global research partnerships.
2. International Business Machines
That's not the only household name on my list of IonQ alternatives today. Did you know that International Business Machines (NYSE: IBM) has been working on quantum systems for several years, too? Launched into the quantum realm in 2016 through its cloud computing platform, IBM has been at the forefront of making quantum computing accessible to researchers, developers, and organizations worldwide. Its quantum exploration has already produced a single system with 1,121 qubits and a groundbreaking way to "knit" smaller quantum modules together into larger systems with exponentially higher processing capacity. Big Blue isn't shipping its quantum tools to customers or research partners yet, but provides cloud-based access to its most advanced on-site systems.
Broader business model: IBM's transition to a hybrid cloud and AI company was long and uncomfortable -- even painful at times -- but the reformed business model now provides robust revenue growth. Most investors will keep their eyes on IBM's AI prospects over the next few years, while its quantum computing effort pursues its innovative goals in a quiet supporting role.
Financial health: With a robust $14 billion in cash from operations and $13.1 billion in cash and equivalents in 2023, IBM's financial health is a testament to its operational efficiency and strategic investments. This financial stability is crucial as it underpins the company's ambitious R&D initiatives, including its quantum computing adventures.
Industry position: Formerly known as a one-stop shop for business-class computing needs, IBM has rewritten its playbook with a sharp focus on high-growth projects like the Red Hat operating system, hybrid cloud services, and AI tools. The company has been around for more than a hundred years and looks poised to compete in the ever-changing IT sector for another century.
3. Honeywell
It's kind of silly to call Honeywell International (NASDAQ: HON) the least familiar name under the microscope today, but there you go.
The engineering giant has been into the quantum computing game since 2014, long enough to spin off its quantum team in a Cambridge University partnership called Quantinuum three years ago. Honeywell still controls that stand-alone company with a 54% ownership stake, though Quantinuum is going through the rounds of venture capital funding, perhaps preparing to enter the stock market someday. But so far, Quantinuum effectively remains a subsidiary of Honeywell.
Broader business model: Honeywell is primarily known for its industrial and aerospace products. The air conditioning thermostat in my kitchen has a Honeywell logo on it, probably alongside a thousand building components I'll never see. The company is a giant of several industries, sharing the common theme of advanced technology.
Financial health: Honeywell's diverse industrial presence provides a strong financial foundation, enabling sustained investment in quantum computing technologies. Its cash from operations added up to $5.3 billion last year and Honeywell has $7.9 billion of cash equivalents in the bank.
Industry position: As an industrial conglomerate, Honeywell brings a unique perspective to quantum computing, focusing on practical applications in materials science and optimization problems -- as any self-respecting engineer would. Quantinuum's official mission is to "accelerate quantum computing and use its power to positively transform the world."
Three titans of technology
IonQ offers an exciting opportunity to invest directly in quantum computing's potential. However, Intel, IBM, and Honeywell present more balanced options with far lower business risks. None of these industry giants are going away anytime soon, and I'm not sure you can say the same about IonQ. This hungry upstart must contend with rival solutions from several business legends with far deeper pockets. That's not an easy task.
All three of my IonQ alternatives are components of the Dow Jones Industrial Average (DJINDICES: ^DJI) market index. I didn't set out to find Dow members with quantum computing ambitions, but that's where I landed anyway. These companies not only participate in the development of quantum computing but also boast diversified business models that mitigate the quantum industry's high risks.
For investors looking to tap into the quantum computing revolution while managing their risk, these three stocks represent a more prudent choice. I didn't buy Intel and IBM shares to gain exposure to quantum computing. Still, I'll gladly accept whatever research progress and future business success they may find in this side gig. And grabbing one or more of these titans looks like the safest way to invest in the quantum computing sector today.
Should you invest $1,000 in International Business Machines right now?
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Anders Bylund has positions in Intel and International Business Machines. The Motley Fool recommends Intel and International Business Machines and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget IonQ: 3 Quantum Computing Stocks to Buy Instead was originally published by The Motley Fool
