Toward the end of 2024, a new pocket of the artificial intelligence (AI) realm called quantum computing started receiving quite a bit of interest from the investment world. Seemingly overnight, stocks such as IonQ, D-Wave Quantum, and Rigetti Computing emerged as popular names leading the quantum computing charge.
Smart investors understand that just because a company begins rising in popularity doesn't necessarily make it a sound investment choice, though. While the companies above have witnessed pronounced gains over the last few months, much of the buying activity is rooted in momentum-driven narratives. As I've previously expressed, if you're going to explore investing in quantum computing, then I think the most prudent options revolve around "Magnificent Seven" members like Nvidia or Alphabet.
Just a few days ago, my favorite Magnificent Seven stock, Amazon(NASDAQ: AMZN), announced an interesting development as it pertains to the company's quantum computing efforts. Below, let's explore how Amazon is making a splash in the quantum revolution and assess how it could help supercharge the company's AI ambitions in the long run.
How is Amazon playing a role in quantum computing?
Classical computing (which is what we use today) is built on a foundation of binary code or bits, such as 0 and 1. Quantum computing does not follow such a linear approach. In quantum mechanics, qubits (quantum bits) can exist in multiple states at the same time -- a phenomenon known as superposition. In theory, this approach allows quantum computers to process complex algorithms at faster speeds compared to today's classic computers.
While this all sounds great, scientists at Amazon point this out:
Vibrations, heat, electromagnetic interference from cellphones and Wi-Fi networks, or even cosmic rays and radiation from outer space, can all knock qubits out of their quantum state, causing errors in the quantum computation being performed.
This decoherence results in high levels of qubit errors, a problem that Amazon is looking to solve. The company's new quantum chip, dubbed Ocelot, integrates error correction into its architecture. This is a unique approach, as it implies that fewer qubits need to be integrated to counter error correction. As such, computation processes should be more efficient (less expensive), which potentially gives Amazon an edge as it looks to build a quantum platform that can be easily scaled.
Image source: Getty Images.
How could quantum computing help Amazon in the long run?
Over the last couple of years, Amazon has invested billions into an aggressive AI infrastructure plan. Some of the company's more notable moves include investing $8 billion into Anthropic, as well as developing its own custom silicon solutions -- Trainium and Inferentia chips.
Image source: Investor Relations.
So far, Amazon's rising capital expenditures (capex) appear to be paying off. The company is witnessing notable acceleration in its cloud infrastructure business, Amazon Web Services (AWS), coupled with rising profits. The combination of accelerating revenue and widening profit margins is providing Amazon with the financial flexibility to double down on its AI infrastructure investments, which now include a foray into quantum computing.
While the company should continue to witness competition from Microsoft and Alphabet, I think Amazon's differentiated approach with Ocelot as it relates to scalability could lead to faster customer acquisition. As a result, I see quantum computing as an exciting new chapter for AWS -- and one that could lead to even further revenue and profit growth in the long run.
Is Amazon stock a buy right now?
Over the past month, Amazon stock has fallen by about 11%. While some of the selling is likely tied to macroeconomic concerns surrounding inflation or the unknown impacts of new tariff policies out of Washington, I do think there is some perceived risk at it relates to Amazon specifically.
Namely, the company's management is guiding for over $100 billion of capex spending just this year. I think some investors may be skittish over that huge sum. But as I pointed out above, the majority of the company's capex spend has been geared toward AWS -- a business that is accelerating across both the top and bottom lines.
Nevertheless, investors don't seem to have bought into Amazon's aggressive growth strategy. Right now, Amazon stock trades for a price-to-free cash flow (P/FCF) multiple of 69 -- well below the company's five-year average of 104. I find this disparity a little ironic considering Amazon is a larger, more profitable business today than it was years ago. Moreover, I think the company's current growth levels have a good chance of rising further as AI becomes more integrated across Amazon's broader ecosystem.
The company's exploration of quantum computing underscores Amazon's commitment to building a diversified AI platform, and I think it will represent yet another investment that pays off in spades in the long run. To me, Amazon stock is a bargain right now for investors with a long-term time horizon.
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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. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. 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.
