What is Happening with Quantum Computing Stocks?

Hype vs reality in the stock market

This week, Quantum Computing stocks experienced significant movement. Following their impressive performance and heightened hype in November and December, the recent downturn has been steep.

Let’s dive in and analyze what is driving these shifts!

What is quantum computing?

Quantum computing is an area of technology that leverages the principles of quantum mechanics (physics at the smallest scales of atoms and particles) to process information in fundamentally new ways. Classic computers use bits (a bit can be 0 or 1). Quantum computers use quantum bits or qubits, which can exist in multiple states simultaneously thanks to quantum phenomena like superposition and entanglement.

There are several key concepts around quantum computing:

• Superposition. Qubits (the quantum bits) can be 0 and 1 at the same time

• Entanglement. The state of one Qubit can be related to the state of another

• Interference. By manipulating quantum states, algorithms can amplify correct solutions while canceling out incorrect ones

This allows to solve certain problems that are almost impossible to solve with classic computing due to calculation time. This can have strong implications in cryptography, science, AI, etc.

Of course, the technology is still at an early-stage and a lot of challenges exist.

The creation of the hype

Searching for new investment ideas (particularly in tech stocks, as they have historically been strong-performing investment themes) investors began to show interest in quantum stocks in October. Between October and December, the performance of some of these stocks surged by over 600%!

A single piece of news can burst a bubble

Quantum computing stocks took a plunge following Jensen Huang (Nvidia's CEO) saying the technology still has years before it is used to its full potential. The reaction has been extremely strong:

• IonQ -39%

• Quantum Computing -43%

• Rigetti -45%

• D-Wave Quantum -36%

What a dramatic fall and a clear indication that the previous surge was driven purely by speculation.

What is happening?

We are experiencing what has been clearly defined by Gartner: the Hype Cycle. It is important to note that, unlike the bubble pattern (here is an article about that), the Hype Cycle is not intended to explain share price movement. However, with any innovation, it often creates huge, and sometimes unrealistic, expectations.

As the technology delivers less than anticipated or takes longer to materialize, disillusionment sets in. This often leads to a prolonged period of poor stock performance. Eventually, things return to normal.

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Let me know what you think of Quantum Computing in the comments!

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What’s next?

It is likely that we expect significant volatility, with sharp ups and downs. It will be followed by a gradual decline as interest wanes and the field fades from public discussion Afterward, a slow and steady recovery could take years to unfold.

This pattern is typical for emerging, promising fields: history tends to repeat itself.

What to do?

If you are into quality investing, these are certainly not stocks to buy. Quantum computing will be a huge revolution... in 5 to 10 years. Until then, which companies are the best? Which ones will survive? Which ones will fail? The answer is simple: you don’t know. Investing in such early-stage companies is extremely risky, close to gambling. This is not how I approach investing.

Yes, you will hear stories of people making thousands or even millions from successful trades. But there is a survivor bias. The reality is that you are more likely to lose a lot. Waiting for the technology to mature, so you can assess the best companies, is probably the wisest move. Stay safe!

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