Is Quantum Computing another bubble waiting to burst?

There has been a spate (FT wrote that Quantum was in a bubble and a rebuttal) of articles depicting Quantum Computing as the latest bubble that includes technology and crypto. Does Quantum Computing present a truly game changing disruptive breakthrough which could usher in radical new technologies and developments or is the technology a rug pull (a familiar term to those in the crypto space)? We examine some of the arguments being made on all sides of the debate.

Before we begin with the arguments, let us first examine the current state of play of Quantum Industry. Very few technology readers will have been able to escape the sheer mountain of news published from the likes of Quantum Zeitgeist who publish news from researchers and companies that are busy harnessing quantum computing. Every week new articles abound with advances in everything from qubit count to error correction. Let’s be clear, there are real tangible technological progress being made by companies ranging from Google to IBM to Honeywell. But aside from the big technology players there are hundreds of small start-ups and scale-up companies such as Riverlane with their Deltaflow Quantum OS tackling every aspect of the quantum computing stack, or the technology components that go into making up a working quantum computer. Then there are applications of quantum that require consultancy as business looks to explore how they can exploit quantum technologies in a range of sectors from banking to pharmaceuticals.

The Quantum Application Issue

Unlike HPC (High Performance Computing) where existing computational tasks are sped up via a range of techniques such as using more processors or nodes or running on a GPU, not many computational workloads are amenable to being run on Quantum Hardware. Namely only specific applications and algorithms can be exploited on quantum hardware. The latest version of Counter Strike won’t run faster or at all on Quantum Hardware. Traditional HPC has made use of parallelism to enable computation much faster by breaking down larger tasks into smaller chunks. However not all tasks can be easily parallelised.

Known Quantum Algorithms such as Grovers or Shor’s are ways to perform classical computation much faster than classical algorithms for searching and factorisation. Most algorithms do not have a quantum equivalent and even if they do, we don’t have the resources right now to exploit quantum properties in order to use because the Quantum Computing machines we do have simply do not have the necessary power to enable those quantum algorithms in the near term. As technology progress continues then it is the aspiration that the power metrics of quantum computers will dramatically increase and therefore allow Quantum Computers to offer a Quantum advantage.

As of now there is no “Killer” application. There isn’t a “Mosaic” browser moment as there was for the web which made accessing the internet a breeze for users, a technology that spawned a whole new way of living and working, with still so much more potential to be realised. The lack of a “Killer” application need not be a problem, because quantum doesn’t need to be a mass market solution workable solutions could emerge from multiple industries and multiple domains. Quantum computing could therefore emerge perhaps more slowly across a variety of more industrial settings. That doesn’t mean consumers cannot benefit from Quantum, since some of the problems that quantum can impact will have knock on effects in security, finance, pharmaceuticals and communication, logistics and more.

Quantum Unicorns

Already there are pure-play quantum companies that are worth more than a billion dollars and therefore can be labelled as a quantum unicorn (companies worth more than 1 billion US dollars). Some of these companies such as PsiQuantum remain as private companies, but others have more recently debuted on the stock market, often via a SPAC. Rigetti, IonQ and D-Wave are some of the publicly listed companies that have been attracting investment. PsiQuantum has raised a huge amount of funding and has caught the attention of investors and quantum enthusiasts.

Investors are betting on a return for Quantum deeptech. Of course fundamentally investing in Quantum technology is likely to warrant more patience than the latest app or game as Quantum is not close to being anything like mass-market.

Quantum Computing is a technology enabler, not a mass market application

The recent financial climate of low interest rates might well have increased the supply of investment cash looking for a decent return with areas such as deeptech, the metaverse, crypto and quantum being some of these areas where radical disruption could lead to significant investment returns. Quantum is perhaps the deeptech area with the most technical challenges because of the state of its market readiness. Whilst companies like IBM and Honeywell sport quantum computers that can be accessed via the cloud they won’t have the mainstream appeal of the metaverse because the target market is not the end consumer, but do not let that detract from the possible potential. Quantum Computing is an enabling technology that can support a wide variety of industries.

No Clear Winner is apparent in the technology run-off so far. Right now the industry sports multiple technology for qubits that include ion traps, photonics, super conducting and semi conducting. There is so far no consensus technology and many researchers believe that specific technologies suit particular problems better. Not having consensus is both exciting and challenging for investors.

What Quantum Revenue?

Despite the wave if publicity around the new quantum kids on the block, companies are still not making massive revenue. A quick look into the financial statements of the businesses doesn’t show a huge degree of revenue. This is where the naysayers would say that quantum companies are in a bubble as their revenues do not support the valuations. Historically valuations of companies listed on stock markets are quite high, with typically high p/e ratios which are often used as measure of value. Not all companies even make positive revenue and therefore the p/e ratios are negative.

One could argue that revenues as seen by the likes of Rigetti are scaling rapidly. Back in 2020 the revenue of the business was only around 700 USD but in 2021 this ramped up to over 5 million USD showing a year on year gain of over almost 8 times, but overall the company is losing money, but those losses are shrinking. Of course each company tells an individual story.

The investment climate in 2022 hasn’t been kind to companies that are not producing revenue and even those that are producing revenue but that don’t produce profit. Quantum certainly is no where near some of businesses that got pummelled in the stock market rout which saw the likes of companies such as AMD and Nvidia haemorrhaged 60% of their market capitalisation. Needless to say that market wasn’t kind to the new quantum companies, many of which had just made their stock market debut.

Google when it IPO’d back in 1998 had little revenue too. We see that revenue came from finding an appropriate business model. Quantum companies may not appear to be the tech giants of tomorrow, but consider Nvidia the maker of graphics cards. Did pundits see the company back in the late 90’s conquering advertising on the web? Probably Not.

Quantum may not have such mass market appeal in as Google and traditional tech stocks, but the whole sector should be seen as an enabler with a currently limited appeal, but that appeal is growing in demand as companies look to explore quantum workflows in their research and development.

What Quantum could be is the next shift in computing technology. Currently only certain algorithms put limits on what quantum can be used for and coupled with the size of the machines further narrows the market. This all supposes that use cases for quantum don’t expand and certainly power, size and performance of the machines themselves are increasing, which just like the early days of some of the processor manufactures went from enabling a small sector to powering an entire planet.

Bubble Territory?

Many are asking whether much of the stock market, especially technology is in bubble. A bubble is defined by investopedia as:

Many will argue that around any new technology a bubble will form, whether it is the internet, web or communications and quantum is no different. Students of past technology cycles will point at the technology bubble of 2000 as being indicative of what can happen when emotions get in front of rational investing. The question is, “is this time different?”.

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