The next big thing in tech is coming. Here's how to invest

While 2023 has been the year of AI, the truth is that this might not be the biggest tech transformation to hit. Complicated and secretive, quantum computing may actually be the gamechanger we’ve not been watching for.

But just because it isn’t making headlines doesn’t mean companies and governments alike aren’t watching it. In fact, you can be certain that the Googles and Microsofts of the world are pouring billions into it, alongside the governments of major global economies. The biggest funding announcements includes China at around $15bn, the European Union with $8.4bn and the United States at $3.7bn. For what it is worth, Australia is also investing in this space with $0.2bn.

McKinsey & Company’s Quantum Technology Monitor tips the quantum technology market to be worth around $106bn by 2040. In the process, it predicts four industries in particular will gain up to $1.3tr in value by 2035. 

Those industries are automotive, chemicals, financial services and life sciences – though it’s worth pointing out that there’s hardly an industry that won’t see an impact from quantum computing.

Quantum computing will be transformative. It will take every existing item of tech we have and bring it to a whole new level – and of course, that could be incredibly lucrative.

So what is quantum computing in a nutshell?

Quantum computing applies the laws of quantum mechanics – the science of the properties of molecules and atoms and constituents – to computing. This allows computers to operate in solving complex problems, like molecular simulation. Think a supercomputer of the highest level.

They use ‘qubits’ instead of ‘bits’ to store and process information. Bits are binary; that is, they can only be one value at a time. By contrast, a qubit can exist simultaneously in multiple different states. This allows quantum computers to make multiple calculations at the same time. They're faster than traditional computers. For example, Google’s Sycamore took 200 seconds to sample one instance of a quantum circuit 1 million times in 2019, when it would take a classical supercomputer nearly 10,000 years to do the same.

Quantum computers already exist – but at this stage, you are unlikely to find one on the retail market. They are extremely sensitive to atmospheric pressure, magnetic fields and temperature. They are typically sealed and operated externally by traditional computers.

In fact, they need temperatures of close to absolute zero to operate (Source: Iberdrola).

You can find out more detail about quantum computing and mechanics via these sites: IBM, Iberdrola and Amazon. 

Why is quantum computing a game-changer?

The ability of quantum computing to solve complex problems with multiple simultaneous calculations has a range of applications.

Here are some key applications.

1. Factorisation: Breaking down large numbers into the product of factors. Examples of use might be in enhancing encryption services for security. Or on the flip side, breaking encrypted data.

2. Quantum simulation: Modelling the quantum interactions between components to assist us in learning. For example, modelling proteins in diseases like Huntington's Disease might assist with determining treatments or even cures. Or simulations on superconductors might assist with developing better, higher temperature superconductors.

3. Optimisation: Sifting through data to determine the best combination. For example, as simple as the best flight schedules or the most suitable positioning for renewable energy grids. It could even be the best investment portfolios.

4. Quantum machine learning and artificial intelligence: Increases the speed, efficiency and accuracy of artificial intelligence and machine learning. This will accelerate trends we are already seeing on the AI side and a range of sectors will benefit, such as biotech companies or defence companies.

5. Sampling and search: The rapid ability to conduct randomised sampling as part of research, match samples or search for commonalities across samples. There are obvious uses on the healthcare side in research and development, but another use might be randomised sampling of circuitry in infrastructure.

While all industries will come to benefit from quantum computing at some point in time, McKinsey identified automotive, chemicals, financial services and life sciences as some of the first to see economic impact from the technology.

Industries set to benefit most economically from quantum computing. Source: McKinsey & Company

What does quantum computing look like for these industries?

For the automotive industry, use cases include simulating of systems for battery or fuel cell technology, new methods of manufacturing, even optimal designs for safety and driving experience. It could be part of the solution for designing cheaper EVs or safer autonomous vehicles. Companies like Ford (NASDAQ: F), BMW (ETR: BMW) and Toyota (TYO: 7203) have published their work into quantum computing.

For chemical companies, quantum computing could allow for improvements in design and refining of chemicals, for example simulating new industrial catalysts. It could mean cheaper, safer or easier to manufacture chemicals. On the flip side, it could mean enhanced chemical disposal processes. One chemicals company heavily investing in this space is BASF SE (ETR: BAS) which is investigating the use case for industrial catalysts by partnering with US start-up SEEQC. 

For financial services, use cases could mean optimised models for investment portfolios, trading optimisation, more efficient administrative processes, changes to customer service through AI tools or enhanced security processes. Some of the world’s big banks like Goldman Sachs (NYSE: GS) and JPMorgan (NASDAQ: JPM) are early adopters of quantum computing.

Locally, Commonwealth Bank (ASX: CBA) has been a big investor in Silicon Quantum Computing, a joint initiative with Telstra (ASX: TLS), the Federal Government, the NSW Government and the University of New South Wales (UNSW), to develop and commercialise UNSW’s quantum computing technology.

Life-sciences stands to benefit from quantum computing in a multitude of ways. Think simulations of pharmaceuticals, the ability to pinpoint and research critical proteins in diseases, advanced imaging or the ability to personalise treatments for patients in a cost-effective way. Moderna (NASDAQ: MRNA) announced a partnership with IBM (NYSE: IBM) to utilise quantum computing in its mRNA research earlier this year, while Polaris (NYSE: PII) is also using quantum computing for drug design. 

How to invest in quantum computing

Quantum computing is still very much an emerging technology, and some of the direct means of exposure could carry a lot of risk – they could be in start-up mode, or micro-caps. It can be hard to predict the winners and losers in new technologies.

However, there are a number of larger companies not only building quantum computers but researching ways to make them more fault-resistant and commercial – after all, the temperature requirement for one is not financially viable for everyone.

You won’t be surprised to know that Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), IBM and Microsoft (NYSE: MSFT) are involved in developing and selling quantum computers, but here are some global names you might not have heard of to add to your research list.

• D-Wave Quantum (NYSE: QBTS): The first to sell a commercial quantum computer and in the process of developing the next generation.

• IonQ (NASDAQ: IONQ): Offers three quantum computer systems which use naturally occurring individual atomic ions at the core of its processing units rather than synthetic quantum systems which are more commonly used.

• Quantum Computing Inc (NYSE: QUBT): Offers access to quantum systems through subscription and cloud based services.

• Quantinum (owned by Honeywell International (NYSE: HON)

  : Builds quantum hardware and software packages to be applied across industries.

• Rigetti Computing (NYSE: RGTI): builds quantum computers and superconducting quantum processors which users can access via cloud or through Amazon Braket.

Australia has only one publicly listed company in this space. 

Archer Materials (ASX: AXE) which has developed a quantum computing process chip and a ‘lab-on-a-chip’ biochip. There are a few start-ups in this space, like Q-CTRL, Quintessence Labs and Quantum Brilliance, along with the UNSW-linked Silicon Quantum Computing.

Don't forget the full value chain for quantum computing when researching companies. That is equipment and components, hardware, systems software, application software and services. On the equipment and components side, semiconductors are a critical component for example, while services are not just cloud offerings but also consulting and education services.

Investors may also want to consider where the beneficiaries of this technology are, and who are the early adopters in this space.

Some examples were listed previously in areas like life-sciences and financial services, but you'll find examples industry-wide. For example, mining companies might use the technology to refine their geological survey process or drilling. Or airlines might use it to enhance flight paths and schedules. 

In coming years, a lack of investing in quantum computing from a potential beneficiary might even be an alarm bell for your portfolio.

This article was originally published for Livewire Markets on Tuesday, 12 September.