5 Best Quantum Computing Stocks to Buy in September 2021

Quantum computing looks like a promising investing theme for the next couple of decades. There have been several breakthroughs in quantum computing over the last decade.

Quantum computing can revolutionize the market through its almost unlimited computing powers. It involves using quantum mechanics to increase a computer’s processing power and can be helpful in many industries. The industry is expected to grow at a CAGR of over 25% this decade and reach $3.72 billion by 2030. Here are the best quantum computing stocks that you can buy in September 2021.

1. IBM (NYSE: IBM)

IBM has a Quantum Services business unit which has its own quantum computer. By 2023, the company plans to have a quantum computer with 1,000 qubits. It has launched the Quantum Accelerator program where IBM experts would work with different companies to identify the near-term actionable quantum computing cases in their businesses and deliver customized projects.

IBM has been working on quantum computing for long

IBM has been working on quantum computing for years now. The company has also been trying to pivot the business from legacy mainframe to cloud computing. The stock meanwhile has sagged and has lost 13% over the last five years. It is however up almost 11% this year.

Wall Street analysts have a bearish forecast for IBM stock and it has received a buy rating from only four of the 17 analysts. 12 analysts rate the stock as a hold while one analyst has a sell rating. Its median target price is $149.50 which is a premium of 8.8% over current prices.

Meanwhile, IBM pays a healthy dividend yield of 4.8% which is over thrice that of the S&P 500’s dividend yield. If you are looking at a dividend-paying quantum computing stock, IBM could be a good play.

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2. dMY Technology Group III (NYSE: DMYI)

DMYI is a SPAC (special purpose acquisition company) that is set to merge with IonQ. All of the other quantum computing companies have other businesses and the quantum computing business is only a small part of the business. Here is where DMYI would fit the bill as the only pure-play quantum computing company.

According to IonQ, “In addition to producing the first and only quantum computer available via the cloud on both Amazon Braket and Microsoft Azure, IonQ has defined what it believes to be the best path forward to scaling quantum computing power.” Over the next two years, it wants to develop modular quantum computers which can be networked together.

DMYI is the only pure-play quantum computing stock

The company expects a market potential of $65 billion by the end of this decade.  As part of the merger, the company would get $650 million in gross proceed which includes a $350 million PIPE (private investment in public equity). The transaction values the company at an equity value of $2 billion.

Here it is worth noting that the merger voting is scheduled for this week. For the merger to go through, the business combination has to be approved by shareholders. While most of the SPAC mergers sail through, of late there has been a flurry of redemptions where the SPAC is then left with much less cash than previously anticipated. That said, more than half of the cash that IonQ will receive would come from the full-committed PIPE investment which can help offset any major redemptions.

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3. Nvidia (NYSE: NVDA)

Nvidia is another quantum computing play. According to the company “NVIDIA cuQuantum is an SDK of optimized libraries and tools for accelerating quantum computing workflows. Developers can use cuQuantum to speed up quantum circuit simulations based on state vector, density matrix, and tensor network methods by orders of magnitude.”

Nvidia stock has gained a cool 68% this year which comes after the brilliant 2020 performance when it was among the top gainers in the S&P 500 Index. The stock has delivered strong returns over the long term and is up almost 13-fold in the last five years.

Wall Street analysts on NVDA stock

Of the 41 analysts polled by CNN Business, 33 rate NVDA stock as a buy or some equivalent. Six analysts have a hold rating while two analysts rate it as a sell. The stock’s median target price is a premium of only about 4% from these levels. However, over the last year, analysts’ target prices have been only playing catch up with the stock’s price action.

Earlier this month, Jefferies raised its target price on NVDA from $233 to $260 while reiterating its buy rating. “We have increased conviction that its data center business is accelerating, and that it continues to build out its software offerings, consistent with our thesis that NVDA is morphing into a Parallel Processing Ecosystem play,” said Jefferies in its note. Overall, NVDA is a good stock to play multiple themes under the digital transformation story.

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4. Intel (NYSE: INTC)

Over the years, Intel has been losing market share to competitors. However, when it comes to making chips for quantum computing, it has a competitive advantage. The stock has come off its highs and is up only about 9% for the year. The dip in Intel stock looks like a good buying opportunity.

Intel is working on a growth strategy called IDM 2.0 under the leadership of its CEO Pat Gelsinger. It has announced $20 billion investments towards building chip factories and is also looking at making chips for others at its facility. Meanwhile, not all are convinced that the IDM 2.0 would be the turnaround for INTC stock that many bulls have been expecting.

Intel can be a quantum computing play due to its chips

Intel is a proxy play on the quantum computing industry due to the chips that it makes. From a valuation perspective also, it looks attractive. The stock trades at an NTM (next-12 months) PE of 13x and offers a dividend yield of 2.6% which is higher than the S&P 500’s dividend yield. Consensus estimates call for an upside of 10.6% in the stock over the next year.

Along with quantum computing, Intel is also a play on the global chip shortage which is set to continue at least for another year.

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5. Alphabet (NYSE: GOOG)

Alphabet is another play on the quantum computing industry. Earlier this year, the company said in a blog post that by the end of this decade, it intends to build a useful and error-corrected quantum computer. The company unveiled its new Quantum AI campus earlier this year to streamline its quantum computing efforts.

Alphabet is betting on quantum computing

According to Alphabet, it got into machine learning two decades back. The company now sees quantum computing as a key long-term driver. The long-term forecast for GOOG stock looks positive looking at the digital transformation. Over the medium to long term, higher monetization on the YouTube platform would help the company increase its topline as well as bottomline. Alphabet is also betting aggressively on the cloud and revenues from that business have been rising sharply.

Alphabet is the best performing FAANG stock in 2021 and consensus estimates call for an upside of 12.2% from current levels. Meanwhile, Alphabet’s valuations might appear a bit stretched and it now trades at an NTM PE multiple of 29.2x. The multiples have averaged 27x and 26.2x over the last three and five years respectively. However, the premium valuations are reflective of the rerating of the stock amid the digital transformation. Despite the surge, GOOG looks like a good stock to buy and play the quantum computing industry.

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