IBM, Alphabet, and Microsoft are at the forefront of companies making strides toward practical quantum computing, according to the latest ranking from UBS. This assessment arrives at a time when technology stocks are already trading at high valuations, and investors are actively seeking the next transformative sector.
UBS highlights this segment of the market as particularly noteworthy because it aims to solve problems that current computing systems cannot handle effectively at scale.
The bank reports that interest in quantum computing has surged over the past year, with IBM, Alphabet, and Microsoft intensifying their efforts to develop systems capable of operating outside of research environments. Smaller companies in the space have also garnered significant attention.
IonQ serves as a prime example. The company's stock experienced a substantial increase over the last twelve months, followed by a rapid decline. UBS interprets this volatility as indicative of the market's early and unstable nature.
UBS Identifies Key Areas for Quantum Computing Impact
A comprehensive 103-page report for clients, spearheaded by UBS analyst Madeleine Jenkins and a team of eleven analysts, outlines the potential impact of quantum computing. The report characterizes the market as fragmented and immature but identifies three distinct areas where the technology is poised to make the most significant contributions.
These key areas are molecular simulation, optimization and artificial intelligence (AI), and cryptography. UBS suggests that these specific applications are driving increased attention from Wall Street.
The analysts acknowledge that progress in quantum computing has been gradual and marked by numerous setbacks. However, they emphasize that recent achievements are particularly encouraging, indicating that the field is beginning to demonstrate tangible technical advancements.
The report elaborates that by leveraging the principles governing the behavior of subatomic particles, quantum computing could offer immense processing power at a significantly lower cost compared to existing systems. UBS projects that the full realization of these benefits could occur in the 2030s.
At that future stage, replicating the output of quantum computers using standard hardware would necessitate the equivalent of 10²¹ graphics processing units (GPUs). UBS estimates that the development of these new quantum systems could cost tens of millions of dollars.
The report further explains that there are multiple methodologies for constructing a qubit, the fundamental unit of quantum information.
Currently, two primary approaches are leading the development race: superconducting qubits and trapped-ion qubits. Jenkins notes that these two dominant paths concentrate leadership within a select group of companies. Alphabet and IBM are focused on superconducting designs, while Microsoft and Amazon are exploring hybrid setups integrated into their cloud platforms.
Big Tech's Strategic Approaches Versus Volatile Pure-Play Companies
UBS recognizes Google, a subsidiary of Alphabet, as a leader in quantum software and error correction. The report specifically references the Willow chip, unveiled in December 2024.
According to UBS, the Willow chip demonstrated a reduction in errors as the number of qubits increased. It also completed a standard benchmark task in less than five minutes. UBS points out that a leading classical supercomputer would require approximately 10 septillion years to perform the same computation.
Microsoft and Amazon are pursuing more diversified strategies. Microsoft is collaborating with smaller hardware specialists like IonQ, while simultaneously researching a topological qubit design. UBS suggests that this topological approach, if successful, could result in a faster and more stable qubit.
Amazon, through its cloud services, supports a variety of quantum computing approaches. UBS has assigned "buy" ratings to both Microsoft and Amazon. Alphabet, meanwhile, holds a "neutral" rating. Jenkins indicates that the ultimate success will depend on which qubit design achieves widespread adoption first.
UBS also draws attention to publicly traded companies exclusively focused on the quantum computing sector. These include IonQ, D-Wave Quantum, and Rigetti Computing. The stocks of these companies have exhibited significant price surges followed by sharp declines. IonQ is the largest among this group, with its market valuation having previously exceeded $17 billion.
Through Wednesday, IonQ's stock had risen 72% over the past year, but it has since fallen 34% from its mid-October peak. Data from FactSet indicates that IonQ's adjusted beta is 2.37, suggesting that the stock's price movements are more than twice as pronounced as those of the broader market.