The rapid advance of artificial intelligence (AI) has led to the proposition that we are now in the era of AI. This raises the question of what comes next.
According to Michio Kakus illuminating book Quantum Supremacy, the next era after AI will be quantum computing (QC). Quantum physics, once considered an abstract concept, now permeates numerous everyday activities, from photosynthesis to MRI scans and the behaviour of electrons on the nanoscale within semiconductors.
Is it too early to invest in this forthcoming wave now? Almost certainly yes but it is time to start preparing. Heres a briefing note to help you know more about QC with one ETF investment opportunity you can consider now.
The key differentiator in QC is the use of qubits instead of bits. Qubits can exist in multiple states simultaneously, unlike classic computer bits which can only be in one of two exclusive states: 1 or 0. This fundamental distinction means that while a classic computers power increases linearly with the number of transistors, a quantum computers power grows exponentially in relation to the number of qubits linked together.
Furthermore, quantum computers can leverage quantum algorithms that make use of quantum superposition or entanglement, reducing the time complexity of the algorithm and fundamentally accelerating problem-solving capabilities. Given that much of the interaction of real-world particles is quantum by nature, it is intuitive that using quantum technologies to simulate and predict their behaviour will offer more authentic results.
Advanced QC has the potential to revolutionise and solve complex real-life problems that are currently intractable for classic computers, even when using AI. It is worth noting that some of the great advances we are likely to see during this era may be the product of a collaboration between AI and QC.
Many computer scientists have proposed that artificial general intelligence (AGI) will only be reached once AI is working in full collaboration with QC. AGI is when computer programs exhibit the ability to understand, learn and apply knowledge across a wide range of tasks, essentially mirroring generalised human cognitive abilities.
The potential of QC for AI is immense. Quantum machine learning could classify larger datasets in less time, and quantum neural networks could process information in methodologies that classic neural networks cannot. While existing AI tools are powerful and practical for many applications today, QC represents a new frontier with the potential to significantly advance the field.
Some of the other areas where QC could have a significant real-world and equity market impact include:
Cybersecurity Quantum computers could break widely used encryption methods which rely on the difficulty of factoring large numbers. Conversely, they could enable the development of disruptive quantum-resistant encryption algorithms to ensure data security in a post-quantum era. There is no reason why the current crop of cybersecurity players could not be at the forefront of quantum encryption and cybersecurity but it is quite possible that we will see new players evolve leading to a cast change in the major sector players. Hence, I would suggest there is medium-level QC disruption risk in this sector.
Drug discovery and material science Quantum computers can simulate the behaviour of molecules and materials at the quantum level with high precision. The complexity of the interaction of molecules (which is a quantum event) means that classical computing is highly limited in its ability to process or simulate complex molecular problems.
QC will improve the discovery of new drugs and materials, and potentially revolutionise the pharmaceutical and materials science industries. Drug discovery is likely to become less expensive, more predictable and quicker to market through better simulation.
In turn, this should reduce costs throughout the industry and may lead to efficacy cliffs for existing blockbusting drugs. I see the QC disruption risk to the pharmaceutical sector as high.
Materials We could see a scenario where raw elemental materials are inferior for each of their respective end tasks when compared to QC-discovered synthetic composites which may be formulated more efficiently through more common elements or compounds.
Supply chain optimisation The current Red Sea hot flashes and the Covid supply chain issues show how the logistics and supply chain is vital to a functioning global economy. QC can optimise supply chains by efficiently solving large-scale logistical and transportation problems, reducing costs, and improving overall efficiency. Improved supply chains should reduce working capital levels and hence increase the return on invested capital for companies which should theoretically drive general equities higher.
Energy production and storage QC may be successful in finding efficient methodologies for nuclear fusion (which is a quantum phenomenon) resulting in a boundless energy supply, discovering new materials for energy production and storage, and potentially accelerating the development of renewable energy technologies and improving energy efficiency. The oil & gas sector will certainly go the way of the stagecoach sector, and I would guess the electricity utility companies will suffer demand destruction as customers shift to at home generation.
Climate modelling The weather is a quantum phenomenon which is why classic computing prediction models are of low efficacy. Simulating the behaviour of molecules, particles, and climate systems at a quantum level could improve the accuracy and speed of climate models. This can aid in understanding climate change and developing strategies to mitigate its effects. It will also allow Insurance companies to price premiums with more certainty lowering this cost for many businesses.
As ever with advances in technology, QC will have a transformative effect on the technology & software sectors and, as with AI, I would suspect that the software sector will again bear the brunt of disruption risk. One company that will have to respond and adapt to QC is simulation software specialist Ansys which we discussed in our last article.
Its important to note that while QC holds immense promise, it is still in its early stages of development, and practical, large-scale quantum computers are not yet widely available. Additionally, the full extent of their capabilities and limitations is still being explored by a very limited number of companies.
In the rapidly evolving landscape of quantum computing, several companies are at the forefront of driving the development and application of QC technologies. These companies are making strides in advancing the capabilities of quantum computing, with each taking a unique approach to this transformative technology.
Microsoft is actively working on delivering quantum at scale by engineering a unique, stable qubit and bringing a full-stack, fault-tolerant quantum machine to its Azure cloud platform. CEO Satya Nadella has emphasised the importance of QC in the companys cloud computing strategy, positioning it as the next-generation cloud. Additionally, Microsoft has launched a programming language called Q# which can be used for simulating quantum algorithms and developing quantum software.
Google Quantum AI achieved a significant milestone in 2019 by demonstrating quantum supremacy, with its 53-qubit Sycamore quantum computer performing a calculation in 200 seconds that would have taken the worlds fastest supercomputer 10,000 years. The companys Quantum AI research team has continued to push the boundaries of QC by reducing its errors through the increase of qubits, boasting a 3-5x performance enhancement over previous models. Google Quantum AI has also been expediting the prototyping of hybrid quantum-classical machine learning models.
Intel is actively involved in the development of QC chips, such as the 49-qubit Tangle Lake quantum chip. The companys focus on advancing the state of the art in QC reflects its commitment to driving innovation in this transformative technology.
IBM is a leader in QC and has launched advanced quantum computer systems. Last month it introduced the Heron processor, featuring 133 fixed-frequency qubits, which marks a significant leap in QC performance and error reduction. IBM believes that practical, effective QC will be available in the year 2033 and has set a roadmap of development to this date.
Alpine Quantum Technologies has taken a distinctive approach to QC by focusing on trapped-ion quantum technology. The company has developed a 20-qubit ion trap quantum computer using complex laser systems to control the trapped ions. This approach sets AQT apart from other companies that are pursuing different types of QC technologies, such as superconducting qubits or silicon-based approaches.
Rigetti Computings approach to QC is unique due to its focus on a multichip strategy for building quantum processors. This approach involves connecting several identical processors into a large-scale quantum processor, which, the company claims, reduces manufacturing complexity and allows for accelerated, predictable scaling.
While it is still early to predict which companies will emerge as the winners in the QC space, investing in a sector or thematic-based ETF or equity basket may be a prudent option in such uncertainty.
The Defiance Quantum ETF (QTUM) is a multi-cap global fund using the BlueStar Quantum Computing and Machine Learning index as a benchmark.
The ETF primarily includes semiconductor and software companies (AI star Nvidia is the fifth-largest holding) involved in the research, development, and commercialisation of QC systems and materials. The fund has assets of about $200m and rose almost 40% in 2023. I would be surprised if the larger US investment banks dont start to launch similar quantum-tracking equity baskets.
In conclusion, the era of QC holds great promise for reshaping our technological landscape and solving complex problems that are currently beyond the capabilities of classic computing. It should have far-reaching implications for the valuation of various sectors of the equity market.
The economic value unlocked by QC combined with its potential to reshape industries underscores the importance of understanding and preparing for the implications of this transformative technology on the equity market. The integration of AI and QC is expected to drive significant advancements, potentially leading to the realisation of artificial general intelligence.
So keep an eye on things QC-related and be prepared to invest should events dictate.
What might trigger such a change? Well Elon Musk has been remarkably silent on the subject - so may be we should use any change in that state as a signal.
Be warned though that from the bits of classic computing we have suffered Bitcoin, so it will not be long before the perma-perplexed fellow down the pub is boring you about QuBitcoins.
The Secret Tech Investor is an experienced professional who has been running tech assets for more than 20 years. The author may have long or short positions in the stocks mentioned.
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The secret tech investor: Prepare for the quantum leap - Citywire