Quantum computing has emerged as one of Wall Street's hottest investment topics. The hype is warranted -- the technology could be a game-changer for humankind. Even the earliest quantum computing chips are far more capable than today's best supercomputers.
Investors have flocked to some of the companies working on the technology. IonQ and Rigetti Computing, two of the hottest names, have soared 600% and 1,100%, respectively, since 2023.
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Their popularity could eventually become a cautionary tale about the downside of following the herd. The upside in these speculative upstarts isn't what it once was. Instead, it's time to consider a longtime technology stalwart. Here is why Microsoft(NASDAQ: MSFT) is my top quantum computing stock to buy in 2025.
Microsoft's achievement highlights just how complex quantum computing is
Today's computers operate as a series of bits -- binary switches representing one position or the other at any given time. However, quantum computing uses quantum mechanics, where qubits, the quantum version of a bit, can simultaneously represent a combination of possibilities.
That difference translates to magnitudes higher computing performance. It sounds simple enough, but it's remarkably complex.
Quantum computing is pushing the cutting edge of physics. To build its Majorana 1 quantum chip, Microsoft developed the world's first topoconductor, a material in a physical state that is neither a gas, a liquid, or a solid. In other words, this technology is taking humanity to new scientific frontiers.
As exciting as that is, it's extremely new and isn't practical yet. Current quantum computers are unstable, require highly controlled environments, and make many mistakes. It could still be years before they improve enough for real-world applications.
The quantum computing opportunity could play out in the cloud
Once quantum computing is ready for action, the market opportunity will be tremendous. A report by Boston Consulting Group last year on this market estimates that the annual revenue opportunity will be $1 billion to $2 billion until 2030 before exploding to $90 billion to $170 billion by 2040. Different researchers have different estimates but agree on the long-term trend.
The companies that will win in this competition must have a path to capture the market. I love an underdog story, but IonQ and Rigetti Computing could have a tough road ahead.
Cloud computing has become the modern gateway to global enterprises. Most companies have resorted to the cloud instead of on-premise computer systems. I don't see why that trend wouldn't continue; artificial intelligence is already driving growth in cloud services.
Microsoft, Amazon, and Alphabet own over 60% of the worldwide cloud market. They will likely leverage their cloud platforms to sell their quantum computing capabilities.
As a result, the market opportunity for on-premise quantum computer systems could be smaller than investors realize. In other words, I don't see a long-term path to leadership for smaller pure-play companies like IonQ and Rigetti Computing.
The safer route could be better over the long term
Microsoft isn't flashy, but investors can be reasonably confident that it will be competitive in quantum computing.
If not for the above reasons, consider the company's track record in AI, cloud computing, and virtually everything else it does within the technology sector. It has immense financial resources and competitive advantages from its existing products and services.
Microsoft is not a home run stock at a $2.9 trillion market cap. Still, at a price-to-earnings ratio of 31 and an estimated 12% annualized long-term growth rate, buying and holding it for a decade will likely work out well.
IonQ (at $5.6 billion) and Rigetti Computing ($2.5 billion) have far smaller market caps, but that guarantees nothing. The two companies combined for under $54 million in revenue last year, and due to the early nature of quantum computing, there's little visibility into how they will grow over the coming years.
When will either business turn a profit? It's anyone's guess, as is how much share dilution will occur by then if either business must raise more funds along the way.
The great thing about Microsoft is that it's a fantastic stock with or without this new technology. It's already a world-class company, and having such a high floor makes it my top quantum computing stock, at least in 2025, in an industry where it may take years to determine the winners and losers.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. 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.
