By now, I'm sure you realize that artificial intelligence (AI) is by far the biggest opportunity fueling the technology sector. Underneath the AI umbrella, semiconductor stocks have been some of the largest beneficiaries. This makes sense, as chipware serves a critical role in the development of myriad generative AI applications.
However, over the last few months an area known as quantum computing has emerged as the latest shiny object in the AI realm.
Below, I'll explore how quantum computing stocks have been moving as of late and later reveal my top pick for which company is paving the way for this new and exciting technology.
Are quantum computing stocks the new darlings of AI?
Quantum computing represents an exciting new chapter in the AI narrative. Unsurprisingly, investors have been chomping at the bit to figure out ways to invest in quantum computing. Check out the trends in the chart below:
Toward the end of 2024, shares of quantum computing stocks such as IonQ, D-Wave Quantum, Quantum Computing, and Rigetti Computing all experienced significant run-ups. Curiously, each of these companies was a penny stock at the beginning of 2024 -- only to see its valuation soar well into the billions during a rather short time period.
While the moves above might suggest that these stocks are the "next big thing" in AI, I'd caution from following the herd mentality. Each of the companies above are development stage businesses. This means none is generating significant revenue, and all of them are consistently burning cash. In other words, the exponential gains illustrated in the chart above are features of meme stocks and not that of sound, prudent investment opportunities.
Even though the share prices above may imply these stocks are cheap, valuation multiples indicate that none of them is deserving of a lofty price point.
With all of this said, there are plenty of safer opportunities when it comes to quantum computing.
Image source: Getty Images.
This is my top pick for investors looking for quantum computing exposure
A common business theory suggests that the people who became most rich during the Gold Rush were the vendors who sold picks and shovels, not the diggers searching for gold. The underlying idea here is that whenever a new theme emerges in the world of investing, it's often a good idea to identify the companies selling the metaphorical picks and shovels.
When it comes to quantum computing, I see Nvidia (NVDA 3.10%) as the top opportunity.
During a recent interview at the CES trade show in Las Vegas, Nvidia CEO Jensen Huang said that he thinks quantum computing won't really be scaled for another 20 years or so. I see pros and cons to this outlook.
For companies such as IonQ, Rigetti Computing, D-Wave, and Quantum Computing, Huang's comments suggest that there's still a lot of work to be done before any of these businesses experience significant growth. In the interim, that likely means each of these companies will continue spending meaningful capital on research and development (R&D) and remain cash-burning operations.
While that isn't a great situation for those companies, it can be a good opportunity for Nvidia. Developing quantum computing requires heavy investment in various AI infrastructure, including graphics processing units (GPU), data centers, and software. Nvidia supplies all three of these products, making the company a critical piece of the quantum computing movement.
To me, Nvidia is the "pick and shovel" component of quantum computing development. In some ways, Nvidia has the luxury of being agnostic as to which companies actually make breakthroughs in quantum mechanics and which do not. Regardless, Nvidia's hardware and software is going to be involved.
Considering quantum computing is likely decades away from reaching scale, this suggests that Nvidia has plenty of upside as more companies begin to explore this new area of the AI landscape. Although there are plenty of reasons to be bullish on Nvidia in 2025 and beyond, I see quantum computing as yet another tailwind that isn't even beginning to be priced into the company's long-term potential. I think Nvidia is a lucrative opportunity to buy and hold for many more years, especially for growth investors or those looking for deep exposure to AI applications.
