If I want to buy a FTSE 100 stock to invest in quantum computing, then I’m out of luck. That’s because there are none listed on this side of the pond.
But one US-listed quantum computing-related stock is Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Shares of the Google parent jumped over 5% in New York yesterday (10 December). Here’s why.
What is quantum computing?
Investors have turned bullish on quantum computing in 2024. Shares in IonQ, a small firm trying to commercialise this potentially revolutionary technology, are up more than 300% in just six months.
Quantum computers harness quantum mechanics to solve problems much faster than traditional computers. Instead of bits, they rely on qubits, which can exist in multiple states simultaneously (i.e. both 0 and 1).
The potential applications of this technology span multiple industries, including drug discovery, finance (portfolio optimisation and managing risks), and training AI systems rapidly.
Consulting firm McKinsey estimates quantum computing could add $1.3trn in value to the global economy by 2035. However, the industry is still in the research and development stage.
Enter Google…
What happened
Alphabet stock rose yesterday after Google announced its latest quantum computing chip, called Willow. This significantly reduces errors, paving the way for a useful, large-scale quantum computer.
Google said Willow performed a computation in under five minutes that would take today’s fastest supercomputers 10 septillion years — a number that vastly exceeds the universe’s age!
Even Elon Musk — hardly Google’s biggest fan — was wowed by this news.
If the technology proves successful, Google Cloud would likely provide quantum-as-a-service to businesses and organisations. Demand could be extraordinary, but a commercial quantum computer isn’t expected before 2030.
How to invest?
Given this, I wouldn’t invest in pureplay, loss-making quantum computing stocks like IonQ and Rigetti Computing. They’re far too speculative and may not have the financial firepower to scale the technology.
As with AI, it’s arguably less risky to consider getting exposure to quantum computing through established cloud platform giants. That could be via shares in Alphabet, Amazon, or Microsoft.
IBM also has a cutting-edge quantum computing research division, but its overall business is slow-growing.
Of course, each firm has their own individual risks. Alphabet’s core search division — still the major cash cow — could yet be disrupted by generative AI tools like ChatGPT. Google’s also under pressure to divest its Chrome browser.
However, Alphabet also owns YouTube and robotaxi firm Waymo. Trading at just 21 times 2025 forecast earnings, the stock offers investors exposure to massive future growth opportunities — including quantum computing and robotaxis — at no additional valuation premium.
FTSE 100 alternative
Another way to get exposure to Alphabet could be through Pershing Square Holdings (LSE: PSH). This is the FTSE 100-listed hedge fund run by Bill Ackman, who’s a buy-and-hold value investor with an excellent track record.
The stock’s up 177% in five years.
In Q3, Pershing Square had around 15% of is portfolio invested in Alphabet. And its shares are currently trading at a massive 30% discount to the net asset value of the fund.
One issue with Pershing Square is that it only holds 10 stocks. This very high concentration adds risk. On the flip side, Alphabet could drive outsized returns over time for the fund.
While I reckon Alphabet shares are worth considering, I’m leaning towards buying more Pershing Square shares in January.
