Will the plunge in the stock price of publicly listed Quantum Companies lead to a Quantum Winter?

Could we be seeing a quantum winter? The recent US stock market turmoil has not been isolated to just the typical bell-weather  tech stocks like Google, Facebook. We’ve seen a couple of publicly listed quantum companies also take a beating due to the stock market  turmoil. The chart below shows the performance since listing of two public companies (Rigetti and IonQ). 

Taken from Google Finance, the financial performance of IonQ and Rigetti shown year to date. Two publicly listed Quantum Computing companies.

With the prospect of further rising interest rates caused by a reaction to how to control inflation some of the shine has begun to come off growth stocks that powered indexes like the NASDAQ to ever greater highs. As inflation picks up we’ve seen the federal commission increase interest rates by 50 basis points and last Friday the NASDAQ was down 5% in a day which has investors spooked by such sudden movements. Individually many stocks fell much further than 5%.

AI Winters happened, parallels with Quantum Winters?

An AI winter is a time when artificial intelligence was considered to be of little to no relevance and overhyped coupled with a period of reduced funding and interest in artificial intelligence research. Of course now artificial intelligence (AI) and machine learning have found their way into almost every aspect of our Lives from the prospect of fully self-driving cars worked on by the likes of Tesla to Volkswagen to machine translation for languages. This author remembers the time in the early 2000s when gifted AI researchers with worldwide impact could not find suitable roles, leading many to simply give up and pursue alternative careers. How rapidly things have changed, where AI academics from top universities are often courted by the tech giants for salaries in the high hundreds of thousands.

Many see the parallels between AI and quantum computing as both have had the potential to be over hyped. Could it be that the last 20 years have been a prelude for AI? For now, it does seem like we are on the cusp of being truly transformative with AI. Only now we see the fruits of that past investment through those lean periods. Does anyone wonder what might have been if there were no past lulls in investment into AI?

IonQ becomes the target of short sellers

IonQ is a publicly listed company that creates quantum hardware utilising ion traps. Rigetti created by Chad Rigetti is another publicly listed quantum computing company that uses super superconducting technology to power its qubits.  In the near future D-wave a currently privately listed quantum annealing company will also become public via a SPAC on the market adding to the number of available publicly listed companies that investors can choose to deploy capital into.

Scorpion capital claims that the recently listed IonQ quantum computing company is a hoax. It claims “An Absurd VC Pump With A Recent Lock-Up Expiration Takes SPAC Abuses To New Extremes”. The 183 page report claims to have evidence of  the IonQ hoax. Inside the report there is everything from attacks on Peter Chapman and his education at MIT to what looked to be simple errors or admissions on slide decks to the frequency of attendance at the lab. 

Scorpion capital have a vested interest in attracting short interest for the stock. That is where investors bet against the share price and make a profit when the price subsequently falls. You can read the report here and make your own mind up about whether there is any substance to the accusations about the company. Investors should do their own due diligence on prospects of course, at that should go without saying.

Much in the report surrounds the controversy of the existence of a 32 qubit device from, which would put it into the upper echelons of performance hierarchy against competing machines. Of course there are multiple ways to measure devices, such as Quantum Volume which aims to take into account more than just the sheer number of qubits. Scorpion claim there are only devices with 11 qubits and illustrate their point looking online and also finding that there are 11 qubits only typically available on Quantum cloud platforms such as AWS BraKet. IonQ state that their 32 qubit devices are for private beta’s. The challenge is that investors, analysts and journalists cannot easily determine the accuracy of these statements and the burden of proof lies with them. 

IonQ produced a response to Scorpion Capital’s issues here. The rebuttal is relatively brief compared to the 183 page document from Scorpion. One reason could be the sheer number of points raised which would require significant investment of time and may not satiate Scorpion at any rate. With some of the comments made, Scorpion should have hired better scientific advisors as they don’t understand the fundamentals, especially when it claims that a Quantum Computer cannot add up 1+1. What has annoyed many in the industry that we spoke to, perhaps then anything is the clickbait style headlines aimed to show IonQ as a Theranos 2.0.

Whatever the outcome events like these will typically taint other publicly and privately listed companies for the reason that it will get investors frustrated by the inability to understand quantum technologies and whether or not they truly are an investable premise. Without being able to verify claims, investors and analysts who mostly do not have a PhD, and even if they did, would not be able to complete effective due diligence on the technologies. For most investors quantum is, excuse the pun, rather a quantum leap of faith. That said, notable technology companies such as Amazon and Lockheed Martin are investors in IonQ and both of these companies are heavily invested in the quantum space. Amazon has its own service named Bra Ket which enables users to run on a myriad of different Quantum platforms.

Quantum Computing: A real advantage? Hopium?

As yet quantum computers haven’t been shown to offer a serious advantage over classical computing. Quantum computing isn’t like a GPU chip which can speed up certain applications and nor are they able to run ALL existing algorithms faster. Then why does anyone care? Quantum Computers right now, are applicable for a number select applications. But these applications, whilst nascent are exciting enough to create an entire industry. Quantum is a not a one hit wonder but nor is it panacea to speed up all computer applications.

Algorithms such as Deutsch-Josza (David Deutsch et al) demonstrate the fundamental properties of Quantum Computing in having a potential advantage for certain kinds of problems. Of course these problems are not relevant to all possible use-cases in life. But there is a growing Zoo of Quantum Algorithms which could offer advantages of classical or conventional approaches to solving problems. The potential of Quantum sits on good foundations. However, one must recognise the inherent limitations of thinking that Quantum can solve all our ills in the computing space. Thankfully well respected researchers and academics like Scott Aaronson (a complexity theorist) can elucidate the finer matters when it comes down to evaluating whether there is performance enhancement from Quantum Algorithms. In order to implement and run the algorithms that could confer a quantum advantage is certainly non trivial on the hardware stack that we currently have. Anyone who wants a dose of “Quantum Reality” should check out Aaronson for his views and informative blog.

Shor’s algorithm has been around since Peter Shor came up with the world changing algorithm in 1994. In simple words it means that the cryptographic protocols that we base modern life and commerce upon may not be secure against attacks from a Quantum Computer running Shor’s Algorithm. We have had almost three decades to kick the tyres on the algorithm and yet it remains, works and does offer benefit over classical algorithms, but is held back from being productive because it simply does not scale at the size of the limited number of qubits we have on offer. Factoring the number 15, is not useful, right now.

Which takes us back to the points made by Scorpion about Quantum Computers being: “A useless toy that can’t even add 1+1, as revealed by experiments we hired experts to run”. This fundamentally misses the point. Quantum Computers are not there to do such trivial math, they are there to provide a fundamentally different way to tackling certain algorithms and adding two numbers (like 1+1) is not one of them. Using a Quantum Computer to add two numbers would be to using a “machine gun to kill a pesky fly”. You could do it, but why would you?

Quantum Preparedness

Much of the current push into Quantum focuses around readiness, almost assuming that once the scaling, error correction and a myriad other issues are resolved, then we’ll have useable workable Quantum Computers doing things useful to us like route planning or helping us design better drugs. Many companies are using and deploying Quantum Computing in an experimental way, to better understand now, what the future looks like. Even though there may be little tangible benefit conferred right now, the future could be a very different landscape. Looking in the rear view mirror at the evolution of the conventional computing industry, few could have thought 20 years ago about the way we would lead our lives today. Understandably companies, people and investors do not want to be left behind. But, there is a fine line between all out “Hopium” and a considered bet on the future.

Businesses that failed to keep up with innovation, ended up like the dinosaurs; extinct. Conventional businesses such as blockbuster that didn’t get behind the internet or new trends such as digital cameras (Kodak), entered the Darwinian hall of fame.

Contagion danger 

One inherent danger will be that the whole industry gets tainted with the short report from Scorpion capital. Just at a time when there is increased conflict in the world and a need for ever tighter security, reducing spend on fundamental and deep technologies could be a disaster. For sure the Quantum field is nascent, but there are real products right now that businesses sell in preparedness. Likely security is most prominent, since quantum security can offer tangible benefits to industries and sectors with a demand for enhanced security.

Labelling is dangerous and sadly the report by Scorpion might reduce the interest in other Quantum companies if investor lump all quantum companies together as a sector and right now there are only two main companies that are public pure play Quantum Computing companies. Investors in jittery markets will be looking to take risk off and instead deploy capital into areas that are considered more secure like energy.

Security Threat from China

Recent announcements have seen US president Joe Biden push for more funding in Quantum Computing to counter the threat from China. Such threats will at least more funding in deep technologies which can provide the USA with both a commercial and militaristic lead. Increased funding means more research. The Biden administration aims to push America’s most vulnerable IT systems to adopting cryptographic standards that can resist the potential threat of code-cracking posed by quantum computing. However the focus at the moment appears to be security rather building devices. That said, it is at least a tacit acknowledgement that Quantum Computing could radically alter the IT landscape.

Challenges still exist

Quantum Computing and its allied fields are still nascent. That means we should not throw caution to the wind and not adopt a scientific and skeptical mode of analysis, especially when it comes to making investments.

That said, one should look back at some of the challenges that were presented during the likes of industrial revolution, or any industrial revolution for that matter. Cautious optimism we think is the order of the day. If we don’t continue to invest, develop sometimes with no sign of product or breakthrough, one thing is for sure, we will never get any emergent technologies.

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