With tech stocks benefiting from sky-high valuations, one quickly-growing corner could define the sector's next chapter. That's because quantum computing offers "extraordinary potential," according to UBS, which highlighted several key stocks leading the industry. Quantum computing companies have gained the attention of Wall Street over the past year, particularly as Alphabet, IBM and Microsoft launched efforts to develop and build the first practical quantum computer . Consequently, some smaller, highly volatile companies, including IonQ , have soared over the past 12 months. Quantum computing remains a fragmented and immature market, UBS analysts led by Madeleine Jenkins wrote in a 103-page report to clients on Monday. The bank sees the technology having the greatest impact in three areas: molecular simulation, optimization and AI, and cryptography. 'Meaningful breakthroughs' "With tech valuations at an all-time high, we believe now is the time to learn about any potential disruptive forces. Whilst progress has been slow and there have been many challenges, we are starting to see meaningful breakthroughs in the quantum space," the 11 UBS analysts named on the report wrote. "By harnessing the behavior of the smallest particles, quantum computing promises to unlock unprecedented computational power at a fraction of today's cost," they continued. "The era of quantum advantage (where quantum significantly outperforms classical systems), could arrive as early as the 2030s. This level of compute would require the equivalent of 10²¹ GPUs to simulate, yet cost only tens of millions to build." UBS said there are multiple ways to make a qubit — the basic unit of quantum information — and that many industries could adopt the technology. Superconducting and trapped-ion qubits are the most advanced today, she said, narrowing leadership in quantum computing to just a few stocks. "Success will hinge on which architecture prevails; and as it stands, we see superconducting/trapped ion as the most promising. Alphabet/IBM are betting on superconducting qubits, while Microsoft/ Amazon -offer mixed modalities via the cloud," Jensen wrote. Public companies that are pure plays on quantum technology include IonQ, D-Wave Quantum and Rigetti Computing , the Jenkins team added. IONQ 1Y mountain IonQ stock performance over the past year. Google, owned by Alphabet, has been a "pioneer" in quantum computing and is currently the leader in software and quantum error correction, especially with the breakthroughs achieved by its quantum chip Willow released in Dec. 2024, UBS said. Willow was able to reduce errors exponentially by using more qubits and perform a standard benchmark computation in under 5 minutes that would take one of today's fastest supercomputers 10 septillion years, the report said. Microsoft and Amazon are more diversified, with their mixed modalities approach to quantum development, Jenkins wrote. Microsoft is both partnering with smaller, pureplay quantum hardware companies, such as IonQ, and researching a new type of topological architecture that could lead to a more stable and fast qubit, she said. UBS rates both Microsoft and Amazon a buy, and rates Alphabet neutral. "Who will win out will depend largely on the modality of qubit that succeeds first," the analyst said. The smaller companies involved in quantum computing have alternately seen outsized gains followed by sharp declines over the past year, making them far more volatile than the broad market. IonQ, the largest of the three, with a market value topping $17 billion, has soared 72% in the past 12 months through Wednesday, but slumped 34% since mid-October. Its adjusted beta is 2.37, according to FactSet data, meaning its more than twice as volatile as the average stock.
