Jensen Huang Caused a Quantum Computing Meltdown ... But I See an Opportunity

Is quantum computing now in meltdown mode?

The group had scored huge gains in mid-December and then did a wild Celtic-style dance through a semi-volatile couple of weeks where the general direction was sideways. We had gotten long a couple of these stocks ahead of the December surge, informed readership of what we were doing, and benefited from three-figure percentage moves over a month and better-than-three-figure gains if you beat us to that punch. We're still long three-digit gains, even after this morning as the entire group -- including  Rigetti Computing RGTI and IonQ IONQ -- is catching a severe backyard beating. 

Among the quantum names, I've long felt that Quantum Computing Inc. QUBT was a better stock, fundamentally than D-Wave Quantum QBTS. This was true even though QBTS had outperformed QUBT of late. Readers knew this and they also knew that I was working my way out of QBTS in order to focus more on QUBT.

(For readers who are not quite yet involved, but want to stay cognizant of quantum-related developments, there is an ETF, the Defiance Quantum ETF QTUM that tries to track the performance of the BlueStar Quantum Computing and Machine Learning Index.)

I think we realized that at least a short-term top had been put in overnight as Quantum Computing Inc offered 8.16 million common shares in a private placement at $12.25 per share in order to raise about $100 million. QUBT closed on Tuesday afternoon at $17.49 and had traded as high as $20.36 just a few days ago. Wisely though, realizing that the elevated share price was more built on momentum and an algorithmic car chase than anything else, QUBT used this opportunity to raise cash. Smart.

Quantum This, Batman!

Did I say "Batman?" I think I meant to say "Jensen." This morning, I found Rigetti down 25%, IONQ down 17%, QBTS down 29% and QUBT down 27%. That's not all because QUBT sold 8 million shares at a discount. What happened was that Nvidia NVDA CEO Jensen Huang commented on the future of quantum computing, which is something that many of us see as the next great thing either after the generative AI craze or ultimately alongside generative AI.

What did Huang say?

"If you kind of said 15 years for very useful quantum computers, that would probably be on the early side. If you said 30, it's probably on the late side," said Huang at a question-and-answer session during Nvidia's Consumer Electronics Show Financial Analyst event. Huang added: "If you picked 20, I think a whole bunch of us would believe it." 

Twenty years out from useful quantum computing. In 20 years, I'll be ... never mind. I may be pushing up daisies and nobody would think I died young. Let's just put it that way.

One must ask oneself. ... Self, does Nvidia stand to gain if the quantum computing craze is pushed out a bit? I really am not smart enough nor educated enough on the subject to answer that question with any kind of authority. I do know that technological development only seems to accelerate, and I have surmised that a legacy tech company that has not been a leader in the last two crazes, the cloud / data center and generative AI runs, might make an aggressive move and try to acquire growth through a merge into this space rather than try to get there organically. I had been thinking of a firm like International Business Machines (IBM) that was just based upon my own conjecture. I have not heard nor read anything, but it would make sense.

My Thoughts

Jensen Huang clearly is more knowledgeable than I on the matter. But we already knew that the industry that will be quantum computing is highly speculative, and that valuations are more an expression of potential rather than of cash flows and profitability. We already "get" that quantum computing, which makes use of quantum mechanical formula to quickly solve highly complex questions or problems, is not just in its early innings, it's still in the batting cage and the game won't start for a couple of hours.

The media seems to have mostly missed that from the same appearance, Huang said "Just about every quantum computing company in the world is working with us now."

The media seems to have mostly missed that from the same appearance, Huang said "Just about every quantum computing company in the world is working with us now." Maybe the iron is hot, but Huang who can barely keep up with AI-focused demand just does not need the next big thing to explode just yet ... and does not want these players to shop elsewhere. These are not conclusions. They are merely the thoughts that are rattling around my cranium as I try to excel in a changing environment.

That Said ...

I'll be adding to QUBT as it trades below $12.25 this morning. I will probably rebuild my long position in QBTS as well and I may even pick up an odd lot's worth of RGTI just to broaden my exposure to the industry. Keep in mind that I am limiting my entire exposure to quantum computing as an industry to a cap of 1.5% of my most often traded portfolio. This is speculative and we don't know who the players will be in Huang's 20 years (or less, maybe a lot less), nor do we know if one of the more tired legacy tech firms does something aggressive in the space.

Funny enough, QUBT told us that something explosive was about to happen. That pennant in place since the mid-December spike was a non-directional warning. Now, we know the direction. I missed it. That's why I didn't warn you. I would not at all be surprised to see the shares trade as low as the 50-day simple moving average. I will be a buyer between the $12.25 paid overnight in that private placement and the stock's 50-day SMA, which is currently $8.40.

Fear? We've been through too much. We make educated choices based on what we know and what we see in an ever-changing environment. No, you can't frighten me by taking me down a notch. That only makes the fire burn brighter. Rock on, my friends. Rock on.

At the time of publication, Guilfoyle was long NVDA, QUBT, QBTS equity.