Alphabet (NASDAQ:GOOGL) shares are up 51% over the past 12 months. But that’s nothing compared to many of the stocks in my quantum computing watchlist. Several of them are up more than 1,000%.
So, why am I talking about Alphabet and quantum computing?
Well, if you’ve been following this rather exciting sector you’ll know that Alphabet — the parent company of Google — is advancing its own quantum technologies, and it’s doing rather well.
Pure-play quantum computing stocks have been in vogue over the past 12 months, but they’re small companies, with relatively short pockets, and often no cash flow.
Alphabet on the other hand is a technology giant. Among other pros, it’s has a huge net cash position of over $50bn. I think its pockets are so deep that it could buy all of the pure-plays and have money left over.
Quantum advantage
Google’s recent demonstration of verifiable quantum advantage (doing something faster than a supercomputer) with its Willow chip and the Quantum Echoes algorithm is a milestone for quantum computing.
The experiment showed that complex simulations — such as molecular modelling — could be performed thousands of times faster than on the world’s fastest classical supercomputers.
From an investment perspective, this is important because it signals that quantum computing is moving from theory to practical application. In fact, Alphabet believes we will see real-world applications of quantum computing in the next five years.
Companies leading in this space are building a technological and competitive advantage that could one day open up opportunities in pharmaceuticals, materials science, and optimisation problems.
Early adoption could translate into faster innovation cycles and new revenue streams. For investors, breakthroughs like this highlight the potential of quantum technologies to reshape industries and generate long-term value.
For now, I don’t believe Google’s quantum computing achievements are really reflected in the share price. Which is strange because some of the pure-play quantum stocks are trading at ridiculous valuations.
However, if Alphabet continues to deliver these updates as we move towards a real-world application, I have no doubt that it will be reflected in the share price.
The broader picture
Personally, I believe Alphabet is among the best value mega-cap stocks. It’s often wrongly compared with communications peers when it’s really a technology giant.
Looking at the figure, the stock is currently trading around 26 times forward earnings. That’s broadly in line with the information technology sector average.
However, it’s expected to grow earnings by around 16% annually over the medium term, leading to a price-to-earnings-to-growth (PEG) ratio around 1.5. That’s a 15% discount to the information technology sector average.
Concerns? Well, there’s always the impact of AI on Google’s search dominance. Some analysts were concerned that ChatGPT’s Altas programme may undermine Google’s dominance — I’m not sure myself.
Nonetheless, it’s definitely worth considering. It’s well-valued and has many strings to its bow.
