Forget D-Wave Quantum: This Big Tech AI Leader Is Quietly Building the Stronger Moat

Quantum computing stocks like D-Wave Quantum and IonQ are promising breakthroughs that could reshape industries. But, for now, commercial deployments of these quantum computing solutions remain limited, while pure-play companies earn modest revenue and are not yet profitable. Hence, although quantum computing technology may prove transformative over time, investors may have to wait years to see it meaningfully solving real-world problems at scale.

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Instead, investors can pay attention to a far more established technology leader with significant exposure to quantum innovation and is backed by a profitable, AI-driven enterprise business generating cash today. That company is International Business Machines (NYSE: IBM).

Quantum computing strategy

IBM has been investing in quantum computing hardware and software for the past few decades.

In late 2025, the company deployed the first 120-qubit Nighthawk system for client use. Qubits are the basic units of quantum information and can process more complex calculations than traditional bits.

Management has claimed that IBM is on track to achieve "quantum advantage," or develop a quantum system capable of solving specific problems better than classical computing systems, by the end of 2026. The company is also aiming to develop a large-scale, fault-tolerant computer capable of running complex calculations with built-in error corrections by 2029.

While these milestones are impressive, they show that even for IBM, quantum computing is not yet a major near-term growth catalyst. However, IBM is not dependent on quantum computing to support its financial performance at least for the next few years. Instead, quantum computing offers a long-term upside opportunity within a much larger, profitable business.

Cash moat

In the fourth quarter, IBM's software revenue was up 14% year over year to $9 billion. Software now accounts for almost 46% of the company's total revenue, highlighting its shift toward a more software-led model. The company also exited fiscal 2025 with $23.6 billion in annual recurring revenue, underlining the strength of its subscription business.

IBM generated $14.7 billion in free cash flows in fiscal 2025. The company is guiding for nearly $15.7 billion in free cash flow in 2026, giving it sufficient flexibility to fund dividends and acquisitions.

AI strategy

Artificial intelligence (AI) is already proving to be a meaningful growth engine for IBM. In fact, management refers to the company as "a software-led, hybrid cloud and AI platform" company.

The company reported that its cumulative generative AI book of business is worth over $12.5 billion, including over $2 billion in software and more than $10.5 billion in consulting engagements. Hence, IBM is benefiting from clients shifting from experimentation to real-time AI deployments.

This traction is not driven by a single product. IBM's entire AI stack is benefiting as enterprises deploy AI to improve productivity, resilience, and flexibility across hybrid cloud environments. This includes the watsonx suite, IBM's AI and data platform for building and deploying enterprise AI solutions, and the Red Hat OpenShift platform that enables customers to run AI workloads consistently across hybrid cloud environments , including on-premise systems, public clouds, and the edge. IBM is also focusing on the agentic AI opportunity with its Orchestrate platform, which enables enterprises to deploy AI agents that can autonomously execute multistep business workflows.

This platform strategy is a crucial part of IBM's competitive moat. The company's plans to acquire data streaming player Confluent for an enterprise value of $11 billion further reinforces this strategy. If completed, this deal will give IBM's AI agents access to live enterprise data across applications, cloud, and application programming interfaces in a controlled, secure, and governed manner.

Management expects nearly 50% of enterprise AI usage to reside either in private clouds or on-premise data centers over the next three to five years. IBM is well-positioned to benefit from this opportunity, as its platform solutions can run efficiently in hybrid environments while giving enterprises the control and sovereignty required for sensitive AI workloads.

Valuation

IBM is trading at 19.2 times forward earnings, which seems reasonable for a stable, cash-generating technology company with a 2.6% dividend yield.

While it may not provide the explosive upside like a successful quantum computing pure-play company in the long run, IBM provides a much more balanced exposure to quantum computing research, AI monetization, recurring software revenue, and strong free cash flows.

Hence, IBM may offer a more attractive risk-reward proposition for long-term investors.

Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines and IonQ. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.