IonQ, Rigetti, and D-Wave Are Surging Again. Is Quantum Computing Finally Real?

After a rough stretch, quantum computing stocks are hot once again. Though they've retreated somewhat in the last week, shares of IonQ (NYSE: IONQ), Rigetti Computing (NASDAQ: RGTI), and D-Wave Quantum (NYSE: QBTS) have gained 50% or more from the end of March.

So, what's going on? And is now the time to buy?

Quantum computing could prove revolutionary

The computer or smartphone that you're likely reading this article on is a classical machine. Every piece of data that it stores and processes is held in binary bits, which can only have two states: 1 or 0. Quantum computers process information using qubits, which eventually land in one of those two states. But during the computational phase, qubits exist in a state of quantum superposition, in which their values are neither 1 nor 0, but probability amplitudes that can be positive or negative. This property allows them to perform calculations in a way that is entirely different from how traditional computers do, and could one day let these machines rapidly solve certain types of extremely complex problems that would take even today's best supercomputers thousands of years.

And some of the applications could have major implications for cybersecurity and national defense.

The federal government is betting on this, and on May 21, the Department of Commerce announced it was distributing $2 billion in funding to the quantum industry that had been allocated under the CHIPS and Science Act. Nine companies -- including D-Wave and Rigetti -- will receive direct funds in exchange for equity stakes.

Though IonQ wasn't among that group, the news sent quantum computing stocks flying across the board. Bulls took it as proof positive that the technology is real and perhaps ready for prime time.

"Real" and "investable" may be a decade or more apart

The truth might be more complicated. As it stands, quantum computing still has a long way to go before it matures into a stable, commercially viable technology.

I see this influx of federal investments as more a validation of the strategic importance of quantum computing than of the technology's maturation. Technology advances in fits and starts, and while there have been exciting developments in this one recently, the players involved are still a long way from turning it into a practical reality.

Image source: Getty Images.

Many researchers in the field think that useful, fault-tolerant quantum computing at scale -- the kind that would justify the current market capitalizations of these quantum computing pure plays -- could be a decade or more away.

These stocks are about as speculative as it gets

Even if I'm wrong on the timeline and commercially useful quantum computers are only a few years away, there's a second problem that has nothing to do with the science.

These three companies are some of the most speculative names in the entire market -- all of them trade at extreme valuations. With little revenue and no profits to anchor them, their share prices move almost entirely based on sentiment, which makes them violently sensitive to the mood of the broader market.

Check out their current valuations and basic financials.

TTM = Trailing 12 months.

When investors' spirits are high, money floods into exactly these kinds of "moonshot" stocks, but when the mood on Wall Street turns -- and it always turns eventually -- the most speculative names are the first ones sold and the hardest hit.

So in a real correction -- whether it's triggered by the AI trade unwinding, a plain old recession, or something else -- companies with steady earnings would take their lumps and move on. Speculative quantum computing names would get absolutely crushed.

The bottom line

To be clear, I'm not betting against quantum computing itself. It may well turn out to be one of the defining technologies of the 21st century, and I'd be glad to be proven too cautious. But at today's prices, buyers of these stocks have to pay for optimistic outcomes that may be 10 or 20 years away -- if they come at all.

I wouldn't buy quantum computing pure-play stocks at these levels.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.