Quantum computing has captured the imagination of investors and technology enthusiasts alike and promises to revolutionize everything from drug discovery to cryptography. The intense attention has made it a favorite market of IonQ (IONQ 2.38%), a company dedicated exclusively to quantum computing. Even after a 45% price drop from its yearly highs last summer, the stock has more than doubled over the past year and trades at a mind-boggling 113 times sales.
IonQ may have a stellar long-term future ahead of it, but it remains a highly speculative investment. It runs a deeply unprofitable business model with more question marks than exclamation points, and the company has yet to launch a system that works. The nascent industry looks risky at this early stage, and IonQ doesn’t have a Plan B ready in case its research or systems-building efforts go awry. Therefore, I prefer to look for more stable alternatives in the field of quantum computing.
In that sense, here are three companies that are dabbling in quantum computing as a parallel activity to much more solid core businesses. This way, you can expose yourself to this cutting-edge technology and at the same time enjoy the benefits of a diversified and proven trading platform.
Let’s start with the semiconductor giant. Intel (INTC 1.91%). Many investors see quantum computing as a serious threat to old-school digital computers, but Chipzilla faces the challenge head-on. The company has been researching quantum computing since 2015 and last year shipped its Tunnel Falls quantum system with 12 qubits (quantum computing units) to its research partners.
- Broader business model: Intel, a leading semiconductor company, is expanding into quantum computing through its research and development initiatives. Its quantum efforts are supported by its core semiconductor business, which provides financial stability and extensive R&D resources. In fact, the company modified a standard semiconductor manufacturing line to launch the Tunnel Falls system. If Intel can scale this approach to mass-market commercial volume, those chip manufacturing facilities can become a game-changing competitive advantage.
- Financial health: Intel is building a lot of manufacturing infrastructure right now, so its balance sheet has seen better days. Still, IonQ can’t compare to Intel’s $11.5 billion in annual operating cash flows and $7 billion in cash reserves. Money from client computing, data center and Internet of Things solutions is funding its forays into quantum computing.
- Industry position: This company essentially built the semiconductor industry from the ground up and remains a leading competitor almost six decades later. With its dominant position in the sector, Intel’s exploration of quantum computing benefits from its unmatched manufacturing capabilities and global research partnerships.
2. International business machines
That’s not the only well-known name on my list of IonQ alternatives today. Did you know that International business machines (IBM 1.07%) Have you also been working on quantum systems for several years? Launched into the quantum space in 2016 through its cloud computing platform, IBM has been at the forefront of making quantum computing accessible to researchers, developers and organizations around the world. Their quantum exploration has already produced a single system with 1,121 qubits and an innovative way to “entangle” smaller quantum modules into larger systems with exponentially greater processing power. Big Blue is not yet shipping its quantum tools to customers or research partners, but it does provide cloud-based access to its most advanced on-site systems.
- Broader business model: IBM’s transition to a hybrid cloud and AI company was long and uncomfortable, even painful at times, but the overhauled business model now delivers solid revenue growth. Most investors will keep their eyes on IBM’s AI prospects in the coming years, as its quantum computing effort pursues its innovative goals in a quiet supporting role.
- Financial health: With a strong $14 billion in cash from operations and $13.1 billion in cash and equivalents in 2023, IBM’s financial health is a testament to its operational efficiency and strategic investments. This financial stability is crucial as it underpins the company’s ambitious R&D initiatives, including its ventures in quantum computing.
- Industry position: IBM, previously known as a one-stop shop for enterprise-class computing needs, has rewritten its playbook with a strong focus on high-growth projects such as the Red Hat operating system, hybrid cloud services and artificial intelligence tools. The company has been around for over a hundred years and looks poised to compete in the ever-changing IT industry for another century.
It’s a bit silly to call Honeywell International (HON 0.71%) he least familiar name under the microscope today, but there you have it.
The engineering giant has been in the quantum computing game since 2014, long enough to spin off its quantum team into a Cambridge University partnership called Quantinuum three years ago. Honeywell still controls that independent company with a 54% stake, although Quantinuum is going through rounds of venture capital funding, perhaps preparing to enter the stock market one day. But so far, Quantinuum remains effectively a subsidiary of Honeywell.
- Broader business model: Honeywell is primarily known for its industrial and aerospace products. My kitchen air conditioning thermostat has the Honeywell logo on it, probably along with thousands of other construction components I’ll never see. The company is a giant in several industries and shares the common theme of advanced technology.
- Financial health: Honeywell’s diverse industrial footprint provides a strong financial foundation that enables sustained investment in quantum computing technologies. Its cash from operations totaled $5.3 billion last year and Honeywell has $7.9 billion in cash equivalents in the bank.
- Industry position: As an industrial conglomerate, Honeywell brings a unique perspective to quantum computing, focusing on practical applications in materials science and optimization problems, as any self-respecting engineer would. Quantinuum’s official mission is to “accelerate quantum computing and use its power to positively transform the world.”
Three titans of technology
IonQ offers an exciting opportunity to invest directly in the potential of quantum computing. However, Intel, IBM and Honeywell present more balanced options with much lower business risks. None of these industry giants are going away anytime soon and I’m not sure the same can be said for IonQ. This hungry upstart must face rival solutions from several business legends with much deeper pockets. That is not an easy task.
The three IonQ alternatives are components of the Dow Jones Industrial Average (^DJI -0.14%) market index. I didn’t set out to find Dow members with quantum computing ambitions, but that’s where I landed anyway. These companies not only participate in the development of quantum computing but also have diversified business models that mitigate the high risks of the quantum industry.
For investors looking to take advantage of the quantum computing revolution while managing their risk, these three stocks represent a more prudent choice. I didn’t buy Intel and IBM stocks to get exposure to quantum computing. Still, I will gladly accept any research progress and future commercial success you may find in this side job. And grabbing one or more of these titans appears to be the safest way to invest in the quantum computing sector today.
Anders Bylund holds positions at Intel and International Business Machines. The Motley Fool recommends Intel and International Business Machines and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.