Quantum computer technology has made great strides in recent years and is becoming increasingly affordable to develop and build. That's good news because the demand for progressively powerful computing units is ballooning with the expansion of cloud computing and the proliferation of digital devices.
Quantum computing could emerge as a key technology and investment trend in the decades ahead. Nevertheless, because it's still in its infancy, the best way to invest in the industry could be via a quantum computing ETF.
What is quantum computing?
- Quantum computers make use of superposition, which is the phenomenon that occurs at the subatomic scale where particles have no clearly defined state.
- Harnessing the power of superposition dramatically accelerates computing speed and can help solve complex problems in the real world such as coordinating logistics or simulating the structure of pharmaceuticals.
- The advent of cloud computing has helped expand access to quantum computers, delivering computations to researchers via a network connection.
Leading companies in quantum computing
Since quantum computing is still being developed, there are few companies out there solely dedicated to the technology. However, there are some well-known businesses funneling lots of research dollars into quantum computing, a newly public pure-play, and a couple more soon-to-be-public pure-plays in the quantum realm.
The best quantum computing stocks include:
- Microsoft (NASDAQ:MSFT): The software giant has various research labs devoted to quantum computing and offers quantum computing services via the cloud on Azure.
- Honeywell (NASDAQ:HON): Honeywell developed its own quantum computer, but it's merging its Honeywell Quantum Solutions unit with start-up Cambridge Quantum Computing to create a new business focused on the nascent industry.
- IBM (NYSE:IBM): The legacy tech firm offers quantum computing and accompanying software and has a community of more than 140 partner companies and research institutions.
- IonQ (NYSE:IONQ): Start-up IonQ merged with special purpose acquisition company (SPAC) dMY Technology Group III in 2021 and is building a network of quantum computers accessible via cloud computing.
- Supernova Partners Acquisition Company II (NYSE:SNII)(Rigetti Computing): Another quantum start-up, it was recently announced that quantum processor designer Rigetti Computing will be brought public via merger with the SPAC Supernova Partners Acquisition Company II.
Defiance Quantum ETF
Besides investing in individual companies, there is one ETF, or exchange-traded fund, dedicated to the quantum computing industry: Defiance Quantum ETF (NYSEMKT:QTUM). Defiance ETFs -- the company that sponsors this and other themed ETFs -- launched in 2018, with its Quantum ETF debuting in September 2018.
The Defiance Quantum ETF is made up of 70 individual stocks, primarily semiconductor and software companies that are working on, or have exposure to, quantum computing in some form or another. The fund is small, with total net assets under management of just $172 million. It has an expense ratio of 0.40%, which works out to $40 in annual fees for every $1,000 invested. The top 10 holdings in the fund are:
| Company | Defiance Quantum ETF % Weighting |
|---|---|
| Analog Devices (NASDAQ:ADI) | 2.8% |
| Synaptics (NASDAQ:SYNA) | 2.5% |
| Ambarella (NASDAQ:AMBA) | 2.4% |
| Advanced Micro Devices (NASDAQ:AMD) | 2.4% |
| Nvidia (NASDAQ:NVDA) | 2.3% |
| Xilinx (NASDAQ:XLNX) | 2.2% |
| ON Semiconductor (NASDAQ:ON) | 2.1% |
| Lattice Semiconductor (NASDAQ:LSCC) | 2.1% |
| Cadence Design Systems (NASDAQ:CDNS) | 1.8% |
| Marvell Technology Group (NASDAQ:MRVL) | 1.8% |
Benefits of Defiance Quantum ETF
- Well-diversified exposure to the quantum computing industry before it gains widespread commercialization.
- The ETF invests in established semiconductor and software technology companies not solely dependent on the development of quantum computing, which could provide some stability to the fund's performance over time.
- In its short history, the Defiance Quantum ETF has doubled in value, although this is attributable to growth in the technology sector overall rather than quantum computing specifically.
Opportunities for quantum computing investing
Although there is only one quantum computing ETF available at the moment, there are other opportunities available for investors wanting to bet on the technology. IonQ is the first publicly traded pure-play stock in quantum technology. Likewise, the merger between Honeywell Quantum Solutions and Cambridge Quantum Computing will offer another opportunity for investors to get in on the movement early, although it's currently unclear when that deal will be complete. Rigetti Computing's pending merger via SPAC is another early-stage investment in the development of quantum processors.
IonQ, Rigetti Computing, and Honeywell are not a part of the Defiance Quantum ETF portfolio of stocks at this time.
Why should you invest in Defiance Quantum ETF?
For investors looking for an affordable way to passively benefit from the development of quantum computing, the Defiance Quantum ETF is worth considering. It's well-diversified across dozens of technology stocks, but it won't implode if quantum computing never takes off since most of these companies also rely on other tech trends such as AI and machine learning. If you want in on quantum computing at an early stage, this ETF is a good place to start.
