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(Bloomberg) -- Alphabet Inc. is ending 2024 on a high, with a quantum computing breakthrough spurring a stock rally late in the year despite having no near-term commercial potential.
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Shares in the Google parent have jumped more than 30% from a September low, with a chunk of those gains coming after news about the capabilities of its quantum computer, which runs on its Willow chip. Quantum computing has provided a positive narrative amid worries about Alphabet falling behind AI-focused rivals like OpenAI as well as fears about antitrust risks, helping the stock re-establish itself as a megacap outperformer. It’s now among the top 20 Nasdaq 100 stocks this year.
“Sentiment has been poor because people were starting to view Alphabet as a legacy company on the wrong side of major advances, but this shows it hasn’t lost its mojo,” said Michael Smith, senior portfolio manager at Allspring Global Investments. “It reminds people that Alphabet is a treasure trove of IP, and a company that will be very relevant to the future of technology.”
Shares are little changed on Wednesday.
The algorithm used to test the quantum computer’s capabilities has no practical applications, the company said, and is unlikely to be a revenue driver anytime soon. Still, the ultimate potential is seen as vast, and Alphabet’s breakthrough has sent the shares of other companies working on similar technologies soaring, including Quantum Computing Inc., Rigetti Computing Inc., D-Wave Quantum Inc. and IonQ Inc.
Governments, tech companies and venture capitalists have poured billions of dollars into quantum computers, which have processing powers millions of times greater than that of classical computers. Bank of America analysts listed a number of potential uses for the technology, including drug discovery, advanced material design and next-generation encryption solutions.
“Quantum innovation has the potential to create a significant tech moat for Alphabet,” even if commercial uses for it are still years away, wrote Bank of America analyst Justin Post. Alphabet’s “track record of developing next-gen technologies with successful monetization” is underappreciated in the stock’s valuation, he added.
Alphabet shares trade at around 21 times estimated earnings, below the Nasdaq 100’s multiple of 27. It also has the lowest multiple among the Magnificent Seven names.
Antitrust risks had been weighing on the stock since a ruling in August that Google illegally monopolized the search market. The US Justice Department has proposed a forced sale of the Chrome web browser and sought to unwind a partnership with AI startup Anthropic — steps seen as more punitive than expected. While the ultimate fallout remains unclear, President-elect Donald Trump’s antitrust picks are expected to maintain a hardline stance against big tech.