For more than two years, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have been unstoppable, with all three indexes rallying to multiple record-closing highs in 2024.
Catalysts have been abundant, with excitement surrounding stock splits, stronger-than-anticipated corporate earnings, and even Donald Trump's Election Day victory, fueling double-digit gains for the stock markets major indexes. However, nothing has stoked optimism more on Wall Street than the rise of artificial intelligence (AI).
While AI remains a hot topic of discussion in 2025, it's ceding way to what may become the next-big-thing on Wall Street: quantum computing.
Image source: Getty Images.
Quantum computing can create up to $850 billion in economic value
Quantum computing is a potentially game-changing technology that utilizes the laws of quantum mechanics to solve complex problems that traditional computers can't. Whereas classic computers are constrained by the amount of data that can be held in a binary digit (i.e., a bit), quantum computers have the ability to manipulate quantum bits (known as qubits), which can exist in multiple states simultaneously.
The ability to supercharge calculations for large data sets and conduct simulation processes, all while minimizing errors, gives quantum computing utility across a wide breadth of industries.
For starters, quantum computing can make AI substantially more effective. Quantum parallelism, which describes when multiple tasks are being performed simultaneously, can allow for faster data processing, resulting in quicker/more accurate image recognition and language processing. Quantum computing can also speed up AI algorithms, leading to an expedited machine learning process.
But there's more to this hot trend than just enhancing AI solutions. With quantum computing, pharmaceutical and biotech companies can run simulations of molecule interactions to improve their approach to drug development. A deeper understanding of molecule interactions might yield cures for hard-to-treat diseases.
Another ideal example of the capabilities of quantum computing can be seen in energy management. Quantum computers would have the ability to align energy consumption and availability, manage energy storage, and accurately forecast fluctuations in renewable energy needs.
In The Long-Term Forecast for Quantum Computing Still Looks Bright from Boston Consulting Group, researchers predict quantum computing will add $450 billion to $850 billion in economic value globally by 2040.
Large addressable markets like this are why scorching-hot quantum computing stocks IonQ(NYSE: IONQ) and Rigetti Computing(NASDAQ: RGTI) have respectively risen by 374% and 802% over the trailing-six-month period, as of Jan. 19.
Image source: Getty Images.
Are we already in a quantum computing bubble?
IonQ develops quantum computing systems that it makes accessible through many of the most-popular cloud infrastructure services platforms, such as Amazon Web Services, Microsoft's Azure, and Alphabet's Google Cloud. Sales for IonQ are on pace to have nearly doubled in 2024, with the consensus forecast for 2025 calling for 100% revenue growth.
Meanwhile, Rigetti Computing develops quantum computing systems, superconducting quantum processors, and offers various professional services to its clients, which includes quantum application programming.
Even though both companies offer seemingly sustained double-digit sales growth potential in what looks to be the hottest trend of 2025, not all Wall Street analysts believe the immediate future for quantum computing stocks is all that bright.
According to price targets set by Needham analyst Quinn Bolton, IonQ is headed to $18 per share, while Rigetti Computing will pull back to $2 per share. If these price targets prove accurate, IonQ would decline by 54% from where it closed on Jan. 17, with the smaller Rigetti plunging by an even more jaw-dropping 80%!
Although the excitement is palpable for quantum computing stocks, there are reasons to believe these parabolic moves in IonQ and Rigetti aren't sustainable.
The parabolic move higher in quantum computing stocks will face multiple headwinds
The most obvious of all concerns is that history has a flawless track record when it comes to next-big-thing investments. Since the advent of the internet three decades ago, investors have consistently overestimated how quickly a new technology will be adopted by consumers and/or businesses and gain mainstream utility. This leads to lofty expectations not being met, which ultimately results in the bursting of a bubble.
No matter how large the addressable market, not a single next-big-thing trend, technology, or innovation has escaped an early stage bubble-bursting event for 30 years. Quantum computing still has a long way to go before it's a mature technology.
To build on this point, quantum computing hasn't yet demonstrated that it can be scaled. Though IonQ is pacing close to a quadrupling in sales from 2023 through 2025, it's only going to generate an estimated $83.5 million in revenue this year. Even with steady double-digit sales growth, these are nascent businesses working from a narrow base.
Additionally, IonQ and Rigetti haven't shown that their operating models are sustainable. While it's easy for investors to be enamored with the largest and most-visible quantum computing stocks on Wall Street, it's important not to overlook their ongoing net losses and cash burn.
IonQ has lost $129.7 million through the first nine months of 2024, with the company's operations burning through $66.3 million in cash. Similarly, Rigetti Computing has lost $48 million through the first three quarters of 2024, with cash burn from its operations expanding to $42.1 million from $38.2 million during the comparable period of the prior year.
Like the metaverse, this is a technology that's going to require plenty of time and ample infrastructure to mature. This makes it likely Bolton's low-water price targets are hit sooner, rather than later.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
