A Once-in-a-Generation Investment Opportunity: Is D-Wave Quantum the Best Way to Play This Monstrous Trend?

The artificial intelligence (AI) trend may be at the forefront of most investors' thoughts, but there's another important tech trend on the horizon: quantum computing. Although commercially relevant quantum computing isn't expected to arrive until 2030 at the earliest, by then, most of the gains to be made from quantum computing stocks will already be in the books.

One popular stock pick in this space is D-Wave Quantum (NYSE: QBTS), as it's a pure play that's vying for massive market share. But is it the best quantum computing stock to invest in right now?

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A different approach to quantum computing

Most quantum computing companies are attempting to create broad-purpose quantum computing units that can essentially be used in many of the same scenarios that a classical supercomputer would be used in. This is obviously the biggest market opportunity, but it's more difficult than making a more specialized unit that's suitable for solving a narrower swath of problems.

D-Wave is taking the latter approach. Its quantum computer is built around a technology called quantum annealing, which identifies some of the lowest energy states of a system. In a computing context, those states represent optimal or nearly optimal answers.

Fortunately for D-Wave, many of the already-identified potential use cases for quantum computers are optimization problems -- among them, weather modeling, logistics networks, AI inference and training, and statistics. One unnamed Fortune 100 company recently inked a $10 million, two-year deal with D-Wave to explore its quantum computing capabilities. If this relationship pans out, it could lead to a much bigger deal.

Commercial relevance is starting to arrive, but does that make D-Wave Quantum the best way to play this trend?

It's impossible to tell which companies will provide the best solutions in quantum computing. The eventual leader may even be one that's not trading on the public markets yet. The reality is, many pure plays won't pan out, and D-Wave could be one of them. Furthermore, there are numerous giant tech companies with massive resources at their disposal competing in this space as well. D-Wave's more specialized approach could be the factor that allows it to thrive, or it could just position it to get squashed by the competition.

McKinsey & Company projects that quantum computing could be a $72 billion annual market by 2035. If D-Wave can capture a large chunk of that market, it's a no-brainer buy now with its market cap at around $6.8 billion. However, there's no guarantee that its technology will pan out, let alone that it will be able to accrue a major share of the market. Even if it does produce commercially viable quantum computers, so could several other competitors. Even if D-Wave proves to be a success from a technological perspective, its stock may not rise much if its eventual bottom-line results are insufficient to justify the level of optimism already baked into the stock. The level of competition that could result from multiple winners in this realm could certainly impact their margins. In the meantime, quantum computing is still a long way away from commercial relevance, and there are a lot of unknowns.

All that said, I do think investors are still OK investing in D-Wave; they just should be aware of the risks. It's a long-shot investment, but based on the size of its potential addressable market, the stock could still produce huge gains if the company's efforts pan out. I like D-Wave's specialized approach, as it means that it's not competing on precisely the same playing field as many of its more well-funded rivals. D-Wave is a solid option for those who are interested in a quantum computing investment, but investors should keep the position's sizing small to mitigate their risk.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.