The Next Artificial Intelligence (AI) Evolution Could Send This Quantum Computing Stock Soaring

Key Points

• Current artificial intelligence applications are pushing the limits of typical silicon and its underlying binary bits.

• New kinds of computers built to take advantage of quantum mechanical properties promise vastly better performance on some tough-to-handle problems.

• One version of quantum computing is proving practical as well as affordable.

• 10 stocks we like better than Quantum Computing ›

There's no two ways about it: Artificial intelligence (AI) isn't just here to stay. It's changing... well, practically everything. Indeed, now that the world's gotten a taste of what's possible, it's recognizing how much more it could be doing with more powerful AI computers.

Enter quantum computing, which makes use of quantum bits -- or qubits -- rather than conventional binary computer bits -- to rapid tackle certain unusual types of computing tasks that would normally demand an immense amount of processing power and time. Those particular strengths could also be applied to the heavy number-crunching that most AI systems require.

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While the hardware made by AI powerhouses like Nvidia (NASDAQ: NVDA) is impressive, it's ultimately limited by the physical attributes of silicon and by binary data that consists only of ones and zeros. Qubits, on the other hand, can also exist in a near-infinite array of probability amplitudes between negative 1 and 1. By taking advantage of some deeply technical attributes of quantum mechanics, a quantum computer can in mere minutes handle a calculation that would take a typical supercomputer years or centuries to complete.

The quantum computing industry is still relatively young, so it's difficult to make reasonable predictions about what it will look like too far in its future. One currently under-the-radar company, however, is shaping up as a potential winner: the uncreatively named Quantum Computing (NASDAQ: QUBT).

What's Quantum Computing?

There's a good chance you've never heard of Quantum Computing the company. Its $2.4 billion market cap just doesn't turn many heads, even compared to other relatively small quantum computing outfits such as Rigetti Computing (NASDAQ: RGTI) or IonQ (NYSE: IONQ). It's also far less commercialized than these rivals, having only done $61,000 worth of business last quarter and a mere $373 million for all of last year ... mostly grants. It's also still losing a ton of money, as the company is still much closer to being in its developmental stage than its early commercialization chapter.

Those are not necessarily reasons for investors to steer clear, though. Plenty of stocks have performed well based on nothing more than a product or premise, well before they produced any actual profits. To hold these stocks, you just need patience and some guts.

In this case, the distinguishing idea is how Quantum Computing's technology is different from other names in the industry. Technically speaking, it's not a quantum computing company by some definitions of the term. Rather, this company uses light photons to create photonic qubits to hold and process digital data. This tech offers the same sort of performance that quantum computers built using more commonly used approaches offer, and as such, the company fairly grouped with the likes of IonQ and Rigetti.

Not quite like other quantum computing companies' tech

There's one critical difference between Quantum Computing's solutions and those of most other quantum players: Its light-based platforms don't need to be supercooled. Photonic qubits, as it turns out, work just fine at room temperature.

This nuance makes Quantum Computing's wares considerably more affordable than most alternatives, not to mention cheaper to operate. Its flagship Dirac-3 system, for perspective, only costs about $300,000 apiece, including installation and warranty. For comparison, Rigetti's quantum computers start at just under $1 million each.

Most players in the industry will rent access time on their platforms, but even then, Quantum's tech is markedly cheaper than its rivals'. A full hour of time on a Dirac-3 will set you back between $1,000 and $2,000, compared to IBM's rate of between $72 and $96 per minute (or between $4,320 and $5,760 an hour) to rent access to its quantum computing platforms.

The kicker: While its Dirac-3 quantum computers may occupy a fair amount of dedicated rack space, the company's ultimately working on miniaturizing its photonic tech enough so that it can be attached to a PCIe card. That means it would be able to connect to the motherboard of a personal computer, turning a desktop into a powerful but compact AI machine. While it could be many years before it reaches that goal (if it does), it is a potential game changer.

The hurdles aren't insignificant

Part of the challenge here is the sheer newness of it all.

Despite the widespread hype around AI, as the Motley Fool's in-house research arm points out, only about 10% of U.S. businesses are actually using AI. Why? They're just not sure how to apply it, or they're still not convinced of its practical value.

Although the two technologies don't have quite the same target markets (the best use cases for quantum computing as its understood today are in academic or technological research settings, such as in drug development, materials science, weather prediction, or cybersecurity), the market is similarly short on people who genuinely understand what quantum computing's tech can actually do, let alone use it.

Image source: Getty Images.

Photonic qubit systems like Quantum Computing's are even newer and even more obscure. The potential user base just isn't ready.

But, the world wasn't ready ahead of time for airplanes, on-demand streaming video, mRNA vaccines, cryptocurrency, space travel, robotic surgeries, nuclear power, and a slew of other technological or industrial developments either. It made itself ready once the value of these solutions became clear.

And there does appear to be value -- or at least interest that would imply potential -- in what Quantum Computing is doing, even if it's not yet evident in its fiscal results. The company is working with organizations including NASA, the Los Alamos National Laboratory, Johns Hopkins University, the University of San Francisco's Data Institute, space exploration technology company Artificial Brain even without exactly knowing where its light-based quantum computing developmental efforts are going.

For interested investors, though, that uncertain future isn't necessarily a bad thing. Those who buy the stock now will be getting in on the proverbial ground floor of whatever this cost-effective quantum computing tech is going to become... if anything.

Just know what you're getting yourself into

This technology might end up being an affordable route to quantum computing that helps bring the tech into the mainstream; most high-six-figure and seven-figure quantum platforms provide far more computing power than their owners might actually ever need anyway. But there's no outright assurance things will actually shape up that way. That's why this ticker's not right for everyone.

Still, the technology works. And as limited in practical uses as it may currently be, there are few other companies working on such type of tech, and even fewer that are as far along in developing it as Quantum Computing is.

Its future certainly looks bright enough -- at least, to the extent that anyone can see it. Industry research outfit Global Market Insights believes the quantum photonics market is set to grow at an average annualized pace of 33.5% through 2032.

The thing is, you'd arguably want to stick with this stock for at least that long for the risk you're taking to fully pay off. That's why investors that can stomach this risk might want to limit it, just by limiting the size of your stake.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines and Nvidia. The Motley Fool has a disclosure policy.