Winners And Losers Of Q3: Applied Digital (NASDAQ:APLD) Vs The Rest Of The IT Services & Other Tech Stocks

By Britney Nguyen

Quantum computing could be a $205 billion market within a decade, according to an analyst who recommends IonQ, Rigetti and D-Wave shares for investors willing to look past 'lumpy' revenue

D-Wave is one quantum company that Mizuho recommends for investors looking to play an emerging trend in computing.

Nvidia's stock is up nearly 22,000% over the past 10 years, and up 46,000% over the past 15. It's easy to see why investors would now want to get in near the ground floor of other stocks whose transformational potential could deliver big gains over the long run.

Identifying those is much easier said than done. Nonetheless, Mizuho analyst Vijay Rakesh pointed to "exponential opportunities" with quantum-computing technology, and he recommended a few plays on the trend "as investors look for the next [Nvidia]."

That said, the ambiguous promises of large-scale quantum computing are still years away, and the near-term revenue opportunity for quantum computing "could be lumpy" since the technology is mostly still in the research-and-development phase.

Rakesh launched coverage of IonQ (IONQ), Rigetti Computing (RGTI) and D-Wave Quantum (QBTS) with outperform ratings in a Thursday note that deemed quantum "The Next Big Compute Revolution."

D-Wave and Rigetti shares have both booked gains in excess of 2,000% over the past two years, while IonQ's stock has risen about 240%. Those moves have largely been driven by hype and momentum, rather than their financial potential in the here and now.

Altogether, revenue for IonQ, Rigetti and D-Wave is tracking to perhaps just $140 million this year, Rakesh said. Meanwhile, D-Wave and Rigetti have market capitalizations north of $8 billion, and IonQ is worth more than $17 billion.

But Rakesh pointed to "major historical computing paradigms" where a technology's growth took off in the decade after that industry reached a revenue run-rate of $1 billion to $2 billion. Quantum computing could be a $205 billion market a decade from now, he said.

He expects the companies to together deliver about $5 billion in revenue by 2030, which would represent 36% of the $15 billion total addressable market for quantum computing that he is modeling by then. By 2040, quantum companies could come to command a 16% share of the total compute-market opportunity.

See more: How quantum computing could become the next frontier in national security

Work and research in quantum computing has been decades in the making, Rakesh noted, but the technology is scaling today as the industry reaches more than 1,000 error-corrected logical qubits, which he said will drive adoption. Qubits are the units of information used in quantum computing that are not binary - like the 0s and 1s used in classical computing - allowing for multiple simultaneous calculations.

As qubits exist in a delicate environment, error correction is needed to protect the information from noise that would cause qubits to lose their quantum state.

Rakesh's price target of $90 for IonQ represents 74% upside to the stock's closing price of $51.67 on Wednesday. In his view, IonQ is "a leader" in the industry due to low error rates with its trapped-ions approach to quantum computing. He also flagged the company's "higher coherence times," meaning that its quantum system can stay in its quantum state longer.

That could give IonQ an advantage in ramping commercial uses faster than competitors, he said. The company offers a full-stack solution that includes networking and sensing. He sees IonQ eventually making up about 16% of the quantum-compute market in the long term.

Rakesh's $50 price target for Rigetti represents upside of 91% from the stock's $26.12 Wednesday closing price. Rigetti has the potential to scale with its qubit targets for next year and 2027, Rakesh said, while meeting 99.8% two-qubit gate fidelity, which is a measure of how close the outcome of a quantum computer's two-qubit gate operation is to the ideal solution.

The company's more than $450 million in cash, equivalents and investments "could be sufficient to operate" through at least 2030, Rakesh said. In his view, Rigetti's superconducting approach to quantum computing puts it close to industry peers International Business Machines and Google (GOOGL) (GOOG). In the long term, Rigetti could take a 10% share of the quantum-compute market.

Meanwhile, the $46 price target Rakesh has for D-Wave represents about 71% upside from the stock's Wednesday closing price of $26.80. D-Wave "is the undisputed quantum annealing leader," he said, referring to a technique in the industry that focuses on finding a quantum system's lowest energy state to fix problems with optimization. Rakesh said D-Wave could make up 10% of the market over time.

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Quantum computing "promises a major transformation in high performance computing," Rakesh said, following general-purpose computing and then parallel computing, which have been enabled by central processing units and graphics-processing units. The technology "can drive exponential" improvement of more than 10,000 times the performance of classical and parallel computing, he said, pointing to problems in areas such as cryptography and machine learning that current computers can't solve.

-Britney Nguyen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

By Mackenzie Tatananni

Quantum computing has emerged as the hot new technology on Wall Street, and for good reason: Supporters say it could usher in a technological revolution. While behemoths like International Business Machines and Alphabet-owned Google have been making moves, the smaller, more aspirational quantum pure plays present a different way to gain exposure to the emerging technology.

In a research note Thursday, Mizuho Securities analysts initiated coverage on shares of IonQ, Rigetti Computing, and D-Wave Quantum at Outperform, with price targets of $90, $50, and $46, respectively. IonQ rose 1.3% to $52.35 in premarket trading while Rigetti ticked 0.5% higher to $26.25 and D-Wave gained 0.8% to $27.01.

Following in the steps of today's classical processors, quantum computing "promises a major transformation in high-performance computing tasks," the firm asserted. We've heard this argument before: Mature quantum computers could lead to a paradigm shift, offering speed-ups in areas such as drug discovery and financial modeling. While the firm sees inconsistent revenue in the near term, it expects an acceleration beginning in 2035, with the total addressable market for quantum computing swelling to $205 billion by the end of the next decade from $1 billion this year.

Founded in 2015, IonQ may be the new kid on the block, but it has quickly set to work landing contracts and building relationships with potential customers. Analysts highlighted the growing adoption of IonQ's services by commercial clients, federal agencies, and cloud platforms offered by Amazon.com and Microsoft. In fact, "IonQ is the most prominent source of quantum computing capacity across cloud selling to AWS, Azure, and Google Cloud," Mizuho noted.

Rigetti, meanwhile, has been deploying quantum computers to end users over the cloud since 2017, four years after its founding. In 2023, the company began sales of full systems, and had deployed 18 different systems as of the end of September. Analysts called attention to Rigetti's technical prowess, noting that the company is targeting 1,000-qubit system by the end of 2027 with 99.8% two-qubit gate fidelity, which would place it among the ranks of "market leaders" Google and IBM.

D-Wave may have first-mover advantage out of all the pure plays as the first company to commercialize the quantum computer, with the sale of the D-Wave One to Lockheed Martin in 2011. The company's vast portfolio of intellectual property, boasting over 220 U.S. patents, helps establish the company as a "recognized pioneer in applied quantum computing," Mizuho analysts wrote. D-Wave has started to ship its second-generation system, the Advantage2, while providing access to compute power over the cloud through its Leap platform.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.