Quantum computing has gained significant attention on Wall Street following Alphabet’s (GOOG 1.62%) (GOOGL 1.60%) announcement of a milestone with its new quantum chip, Willow. Alphabet stated that Willow can exponentially reduce errors as it scales up, completing a standard benchmark computation in five minutes—an operation that would take one of the fastest supercomputers today 10 septillion years.
Quantum computing buzz grows on Wall Street after Alphabet’s breakthrough
This announcement triggered a rally in Alphabet’s stock and led to a surge in shares of smaller pure-play quantum computing companies, including D-Wave Quantum (QBTS -9.29%), Quantum Computing (QUBT -9.65%), Rigetti Computing (RGTI -12.54%), and IonQ (IONQ -6.40%). However, stocks in these companies saw declines in January after pushback from several prominent tech CEOs. Nvidia CEO Jensen Huang claimed that “very useful” quantum computing is 15 to 30 years away. Meta Platforms CEO Mark Zuckerberg shared a similar sentiment, asserting that useful quantum computing is quite distant and that “pretty smart AIs” will likely be available sooner. Former Cisco Systems CEO John Chambers stated that quantum computing is still a way off in the “AI decade.”
Despite this, quantum stock leaders have defended their technology and business prospects. Investors should note that quantum computing remains an emerging technology, with firms like Quantum Computing, D-Wave Quantum, and Rigetti Computing generating little to no revenue. IonQ is the largest among these companies, with a 2024 revenue guidance of $38 million to $42 million, although it doubled its revenue in the third quarter. Its market cap stands at $9 billion, resulting in a price-to-sales ratio exceeding 200, indicating substantial investor optimism.
While the potential of quantum computing stocks is debated and the timeline for disruption is uncertain, traditional AI is currently more deserving of investment due to its rapid growth and disruption across various industries. We identify two AI stocks that are particularly favorable for investment in 2025: Micron Technology and TSMC.
Micron Technology shows AI demand growth
Micron Technology (MU 3.07%) is recognized as a memory chip supplier experiencing a surge in demand driven by AI technologies. The company reported an 84% increase in revenue during its fiscal first quarter, reaching $8.7 billion. Notably, its data center revenue grew more than 400% year-over-year and 40% sequentially, attributed to robust AI demand.
Micron maintains a close partnership with Nvidia, believed to be its largest customer. Following Nvidia’s announcement of using Micron’s chips in its new Blackwell platform, Micron’s stock rebounded. Although Micron’s stock fell after a recent earnings report presented weak guidance, management indicated a return to strong growth is forthcoming, presenting a compelling opportunity for investors. With a forward P/E ratio of 14, the stock appears undervalued relative to its growth potential.
TSMC’s robust market position
Another AI stock projected to be essential for 2025 is Taiwan Semiconductor Manufacturing Company (TSMC) (TSM -1.53%). TSMC is the largest contract chip manufacturer in the world, producing chips for clients such as Nvidia, Apple, and Broadcom. The company commands over 50% of the third-party chip manufacturing market and approximately 90% of the advanced chip market, reinforcing its crucial role in the global economy.
In the fourth quarter, TSMC reported that 74% of its revenue derived from advanced chips, classified as being 7 nanometers or smaller. The company achieved a revenue growth rate of 38%, with its operating margin nearing 50% during this period. With sustained AI demand and an anticipated broader recovery in the chip sector, TSMC is positioned for another strong performance in 2025 and beyond.
Recently, leading AI companies have propelled the stock market, including Nvidia and Amazon, resulting in significant gains across the S&P 500, the Dow Jones Industrial Average, and the Nasdaq, each of which posted double-digit increases. As AI technologies continue to shape various industries, quantum computing, which leverages quantum mechanics for problem-solving, also continues its development. During the CES event, Jensen Huang suggested that practical quantum computers are about 20 years away, leading to a significant drop in shares for quantum firms like Rigetti Computing and Quantum Computing.
Despite these challenges, quantum companies are advancing their technologies. Rigetti recently launched its 84-qubit Ankaa-3 system, achieving an accuracy milestone. Quantum Computing is also focused on scaling up crystalline lithium niobate for optical integrated circuits and is currently establishing a manufacturing facility.
As the outlook for quantum computing remains cautious, Microsoft announced its “quantum ready” initiative for businesses to prepare for this emerging technology by 2025. Furthermore, Nvidia has scheduled its first Quantum Day for March 20, as part of its annual AI conference, to discuss advancements in the field, hinting at efforts to potentially shorten the timeline for useful quantum computing.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
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