Quantum Computing: A Reality Check or the Beginning of a Bust?

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Annabelle Chih / Bloomberg / Contributor / Getty Images
Yesterday, quantum computing companies faced a sudden and dramatic crash, losing nearly half their value and wiping out approximately $20 billion in market capitalization.

The catalyst for this sell-off was Jensen Huang, CEO of Nvidia, whose remarks at CES in Las Vegas highlighted how far we still are from the practical application of quantum computing technology. 

Huang stated, “If you were to say 15 years, that might be a little too soon. If you said 30, that might be a little too late. But if you picked 20, I think a good number of us would agree with that.”

He also emphasized that quantum computers are not a one-size-fits-all solution. While they have immense computational potential, their ability to process data is still highly limited given current technological constraints.

These comments sent shockwaves through the quantum computing sector. Companies like Rigetti Computing (-45%), Quantum Computing Inc. (-43%), IonQ (-39%), and D-Wave Systems (-36%) experienced massive drops in their stock prices. 

Although Huang’s predictions may seem pessimistic, it’s undeniable that quantum computing is still years—if not decades—away from mainstream usability. While estimates vary, the consensus leans toward a 10-year horizon. Alphabet aims to commercialize its first quantum computer by 2030, priced at around $1 billion, while IBM is expected to make announcements about its quantum roadmap this year. 

For context, Google’s latest quantum chip, Willow, operates with 105 qubits—quantum equivalents of traditional computer bits. While Willow can maintain coherence (stability) for a brief time, scaling this technology for practical use requires roughly 1 million qubits, a milestone experts say is far off.

Google has identified Willow as the second of six steps toward building a functional quantum computer. However, yesterday’s market reaction highlights investor realization that the road ahead for this technology is still very long.

Does the Market Reaction Make Sense?

The short answer is yes—and it lies in the concept of Terminal Value (TV).

The value of a stock is derived from two components: the present value of its free cash flows (FCF) and its Terminal Value, which represents the residual value of the company beyond the forecast period.

Terminal Value is calculated using the formula:

TV=FCFₙ * (1 + g)(r−g)TV = \frac{{FCF}}{{r - g}}

Where n is the last period in the forecast, r is the discount rate, and g is the expected growth rate.

For companies without significant current cash flows, almost all their valuation comes from their Terminal Value. As a result, their stock prices are highly sensitive to changes in growth expectations or discount rates.

For instance, consider Rigetti Computing: a mere 1% increase in its projected growth rate could lead to a 317% rise in its Terminal Value. Conversely, for a mature company like Coca-Cola, the same increase would only lead to a 17% appreciation in Terminal Value. 

Huang’s comments cast doubt on the timeline for quantum computing, leading to a downward revision of growth expectations for these companies. This triggered the sharp sell-off, which could worsen if other influential voices echo his views.

Lessons for Investors

Investing in companies with negative cash flows and little tangible revenue is inherently risky, as their valuations rely almost entirely on narrative-driven growth expectations.

A positive narrative can fuel growth expectations, driving stock prices higher. Rising stock prices, in turn, create hype, reinforcing the narrative in a virtuous—but short-lived—cycle.

However, as Warren Buffett famously said, “You don’t find out who’s been swimming naked until the tide goes out.”

The dot-com bubble, cannabis stocks, and the metaverse are all examples of industries with credible long-term potential where excessive hype temporarily inflated valuations.

For quantum computing, the same lesson applies: without solid fundamentals, caution is key. Investors should balance their enthusiasm for revolutionary technologies with a clear understanding of the risks involved.

Let’s not forget—narratives may create waves, but fundamentals ensure the ability to ride them long-term.

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