Quantum computing has been on my radar for a while now, but the recent volatility in tech stocks had me wondering if it was the right time to buy in. After digging into the latest developments, I’m convinced a quantum computing turnaround is likely in play. Many quantum computing stocks got caught up in the broader sell-off over the last two years, but look primed for a comeback. This technology has advanced rapidly, and we’re nearing the tipping point where quantum computers will outperform classical machines. Indeed, that is already the case regarding specific calculations.
If we take the recent AI boom as a yardstick, tremendous gains can be provided to investors, should quantum computing live up to its potential.
Hardware is improving, investments are pouring in, and tech giants are snapping up quantum startups. Sure, there’s plenty of risk still involved in investing in this space. However, I believe now is a good time to buy at a trough before they start mainstream.
Back in February and March, I pointed out IBM (NYSE:IBM), IonQ (NYSE:IONQ), Microsoft (NASDAQ:MSFT) and Honeywell (NASDAQ:HON) as potential quantum computing plays worth buying. Except for Honeywell (down ~7.5%), all are up, with IonQ up a staggering 258%-plus. I cannot guarantee that these stocks can repeat such gains in the current environment, but there are still ones that can deliver 50% -plus gains over the next year.
I’d exclude obvious picks like IBM and the tech giants. They’ve been covered ad nauseam, so this article will provide little value if I include them.
With that said, here are three quantum computing picks I think are worth buying in September.
Alibaba (BABA)
This first pick may surprise many investors, given Alibaba (NYSE:BABA) is known primarily as a Chinese e-commerce and cloud services company, and not readily considered a quantum computing play. However, Alibaba operates its own quantum computing cloud platform and research lab focused on advancing quantum technologies. The company formally launched the Alibaba Quantum Laboratory in 2015, and has been slowly but steadily making progress in the field.
While Alibaba faces macro challenges from China’s tech crackdown and recent economic troubles, I believe the company’s outlook is improving as the stock has mostly traded sideways in a range for a while now. Chinese policymakers have pivoted to stimulus efforts to revive growth, which should provide a friendlier backdrop. With shares looking undervalued compared to historical averages and analyst average price targets around 49% upside over the next 12 months, I foresee Alibaba transitioning into a turnaround story.
As one of China’s tech titans, Alibaba boasts tremendous resources and talent to steer its quantum computing efforts. The company is exploring how quantum computing could enhance areas like logistics, finance, materials science, and pharmaceuticals. I wouldn’t keep looking in the rearview mirror with Alibaba, the future road ahead seems bright. This is a long-term value play on an emerging technology trend still in its nascent stages.
Defiance Quantum ETF (QTUM)
After highlighting two very different individual quantum computing stocks, this ETF play offers balanced exposure to the emergent quantum computing sector. Investing in any bleeding-edge technology like quantum computing carries risks, especially for specific stocks. Market turbulence can hit single names hard.
That’s why the Defiance Quantum ETF (NYSEARCA:QTUM) provides a smart alternative, providing a diversified basket of stocks related to quantum computing. This buffers investors against the downside risk of owning any single stock, while allowing investors to participate in the upside potential of this sector’s growth.
QTUM stock has put up impressive returns of 29% over the past year and 109% over the past five years. That handily beats the performance of most individual (and more speculative) quantum computing stocks over the same time period. For those seeking broad quantum computing exposure without the stomach-churning volatility of a single stock, QTUM stock is certainly a compelling choice.
The ETF launched in late-2018, making it one of the first quantum computing funds of its kind. Top holdings include heavyweights like IONQ, Rigetti (NASDAQ:RGTI), Nvidia (NASDAQ:NVDA), and Intel (NASDAQ:INTC). While I rarely cover ETFs, QTUM makes perfect sense to me for investing in the complex quantum computing arena.
Rather than betting on unproven startups, this ETF offers a diversified portfolio of more established tech companies making big strides in quantum computing. These companies also boast substantial financial resources to keep pushing quantum research and development forward. While the technology itself is futuristic, I think the investing approach here is prudent.
Quantum Computing (QUBT)
Whereas Alibaba offers a relatively safe avenue to gain exposure to quantum computing advancements, Quantum Computing (NASDAQ:QUBT) represents the polar opposite as an extraordinarily speculative, high-risk/high-reward opportunity. This small-cap company aims to be a first-mover in commercial quantum computing, but it’s still in the very early stages with minimal revenue generation so far.
While the potential upside is astronomical if Quantum Computing delivers on its ambitious vision and promises, investors must be comfortable with extreme volatility and the possibility of permanent loss of capital. This company appears to be years away from profitability and continues diluting shares at a rapid clip, raising valid concerns. Thus, QUBT stock is likely only suited for aggressive growth-focused portfolios with the stomach for triple-digit swings while targeting outsized upside.
On the plus side, the bleeding seems to be slowing, as QUBT stock has mainly traded sideways in a range since late-April. This consolidation creates the potential for explosive upside if sentiment improves and bulls return. Of course, no one can predict whether the current level marks the bottom, as it is hard to find out how realistic the company’s promises are. In my eyes, this lottery ticket play could either make you rich or expire worthless, so it’s not for the faint of heart and deservedly at the caboose of this article. I’d recommend reading this deep dive by Don Steigner if you want to learn more about the company’s “spectacular claims.”
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.