By Tom Taulli

While artificial intelligence still dominates the headlines in the tech world, there is another category that is getting much more attention from investors lately: quantum computing. A group of pure-play stocks in the quantum computing sector have caught fire with investors. During the past year, the shares of D-Wave Quantum have gained nearly 300% and those of Rigetti Computing are up over 600%. Both fell nearly 10% on Tuesday, illustrating the volatility of the sector.

Recent tech breakthroughs are driving the gains. Alphabet recently announced Willow, which is an advanced quantum chip. It was able to complete a complex test in under five minutes that would have taken a traditional supercomputer 10 septillion years (this is a number with 25 zeros). On the news, Alphabet stock jumped by 7%.

Microsoft also announced its own chip, called Majorana one last week. Based on 17 years of research, it appears to be a breakthrough in quantum computing because it is based on a new material called a "topoconductor." It's actually a new state of matter that's different from solid, liquid, gas, and plasma states. The topoconductor has the potential for making systems more reliable and scalable.

With all the excitement, it's likely that investors and financial advisors will get plenty of questions about quantum computing -- even those who decide to stay away at present. Here's some additional background on the sector:

A bit on the basics. Since the late 1930s, computers have been based on binary operations. There are two digits: 0 and 1. They can be used to create highly complex systems that can do things like guide missiles or handle texting on your iPhone.

But quantum computing upends this approach. It leverages quantum mechanics, which is about the interactions of subatomic particles. It's highly complicated and can seem more like the world of fantasy, where the traditional laws of physics don't apply. As the late physicist Richard Feynman reportedly once said: "If you think you understand quantum mechanics, you don't understand quantum mechanics."

As for a quantum computer, it uses a qubit (which is short for "quantum bit"). "It has 'superposition,'" says Scott Best, the senior technical director of Silicon IP at Rambus. "This means that a qubit can be 0, 1, or somewhere in between all at once. There is also 'entanglement' with each other. This is another advanced quantum mechanics feature that can boost overall computational power."

Projected industry growth. The quantum computing industry is still in the nascent stages. But the growth potential appears to be enormous. According to research firm Global Quantum Intelligence $(GQI)$, spending on this technology is expected to range from $15 to $20 billion over the next five years. In 2024, the market size was about $one billion.

Maturity of quantum computing. A raging debate in the industry is whether the technology is still experimental or if it is ready for commercialization. Earlier this year, Nvidia CEO Jensen Huang noted that we wouldn't have "very useful quantum computers" until 15 to 30 years from now.

But there are other tech leaders who beg to differ, such as D-Wave Quantum CEO, Dr. Alan Baratz. "Jensen Huang has a misunderstanding of quantum computing," he says. "While he might be right about other quantum companies, he is dead wrong about D-Wave. There is more than one approach to building a quantum computer. D-Wave took a different approach, which has allowed us to become commercial today."

Will it disrupt financial services? There are seemingly endless use cases for quantum computing, from materials science to weather forecasting to drug discovery. Some of the use cases are likely things we cannot even imagine today.

Then how might quantum computing impact the financial services industry? There are already some interesting applications.

"Commercial investment firms are currently using quantum optimization, particularly for portfolio optimization, to maximize returns while minimizing risks," says Bill Wisotsky, who is the principal technical architect at SAS.

In fact, this technology could disrupt the financial services industry. "Financial institutions that harness quantum computing could more effectively analyze large or unstructured data sets and make better predictions," says Joe Depa, who is EY's global chief innovation officer. "More broadly, quantum computers will be able to tackle complex optimization problems such as portfolio optimization, risk management, option pricing, and arbitrage detection, which are extremely compute-intensive today."

Quantum risks. Perhaps the biggest threat of quantum computing is security. A system can be used to potentially crack encrypted algorithms.

"Can you imagine a world where a single quantum computer could unlock every encrypted file and application in a matter of minutes?" says Rich Salz, Akamai's principal architect. "Many organizations, including the U.S. government, are already preparing for Q-day -- the day quantum computing arrives."

One problem is no one knows when that will be, he says. To prepare, experts are working on what's known as post-quantum cryptography (PQC). "Some of the approaches include quantum-safe cryptography, or quantum-resistant cryptography," says Salz. "The government is specifying timelines for when traffic needs to be quantum-proof, with the first deadline in 2030."

That deadline, five years away, suggests we have some time until quantum computing really changes the tech landscape, but opportunities for investors are emerging now.

Tom Taulli ( @ttaulli ) is a freelance writer, author, and former broker. He is also the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction .

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February 25, 2025 15:45 ET (20:45 GMT)

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