Quantum computing sounds like something out of a Star Trek movie, which can make the investment world buzz surrounding it hard to figure out. It’s definitely not science fiction. Although it is an emerging technology, it’s grounded in reality, and a key element of the technology frontier.
In really simple terms, quantum computing is a new way to tackle mega-computing problems that supercomputers can’t handle. While supercomputers have impressive capabilities, they don’t have the working memory to process the almost infinite myriad of combinations needed to address real-world problems in fields like genetics or transportation. In addition, they work sequentially, analyzing one combination one after another, which can take a long time when the combination quantities are massive.
Quantum computers don’t simply do the same things better and faster—they process information in an entirely different way, based on the principles of the behavior of energy and material on the atomic and subatomic levels.
For example, traditional computers operate on binary bits that process information as ones or zeros. Quantum computers transmit information via quantum bits, or qubits, which can exist either as one, a zero, or both simultaneously. Since they are not limited by a binary nature, they can handle operations at speeds exponentially higher than conventional computers with much less energy consumption.
Quantum computers use that power to create vast multidimensional spaces to represent very large problems. Algorithms then utilize quantum wave interference to find solutions in the space, and translate them back into forms we can use and understand. The results are amazing—things that would take a week to calculate on a supercomputer take a second on a quantum computer.
Top reasons to consider investing in quantum computing
Potential to get ahead of the crowd
Over 130 companies and research institutes are currently working on R&D related to quantum computing, including big players like Amazon, Alibaba, and Microsoft. In 2019, Google announced that it had designed a quantum computer that could solve a problem in 200 seconds that would take the world’s fastest supercomputer 10,000 years. However, to date, all quantum computing progress has been in R&D, with no commercial applications.
The main reason why none of these companies have developed commercial applications is that qubits are still error-prone and present significant maintenance challenges. A simple action or change in variables when running operations can cause qubits to deteriorate into decoherence or lead to the loss of their quantum state. Even small vibrations and temperature shifts will cause qubits to decohere.
These challenges are significant, but not insurmountable. While there are no guarantees that the technology will mature to the point of mass marketability, the quantum market could be analogized to smartphones before Steve Jobs introduced them to the world in the infamous 2007 debut. In fact, when Bank of America strategist Haim Israel was asked what invention would be as revolutionary in the 2020s as smartphones were in the 2010s he said without hesitation, “Quantum computing”.
Companies that are already working in R&D in the field could be well placed to take advantage of its opportunities when the technical difficulties are overcome, and investments in those companies have the potential to lead to enormous profit.
Quantum computing has already attracting widespread interest. According to a report published by P&S Intelligence in February 2020, the global quantum computing market share was valued at $507.1 million in 2019 and is expected to exceed $64,988.3 million by 2030. As the market expands, investors can invest in a variety of quantum computing stocks to create a balanced portfolio that isn’t dependent on the success of a specific company or product.
Quantum computing has the potential to disrupt key industries
Quantum computing is critical to particular types of challenges, such as probability problems, optimization (such as transportation), and molecular simulation in drug development. Some of the industries that it is expected to disrupt include:
Medicine: pharmaceuticals and genetics
Drug development today relies on expensive, low-yield trial-and-error. As more data becomes available, the cost of drug development skyrockets—it’s simply too difficult to process it all. Quantum computing could change that.
Genome sequencing is another medical arena that creates lots of data and is currently limited by computational power. In fact, experts estimate that the data on genomics doubles every fifty days. Quantum computers have the capacity to harness that massive data to develop new treatments.
Cybersecurity
Cybersecurity is a constant challenge to every individual, corporation, and government entity operating today. Most current cybersecurity solutions rely on cryptographic algorithms that quantum computers can solve in a fraction of the time it takes a normal computer. As quantum solutions mature, current cybersecurity tools could quickly become obsolete.
Private companies and governments are preparing for this eventuality by developing new encryption methods known as “post-quantum cryptography”. They create problems that even powerful quantum computers would have trouble solving making them more resilient to attacks from quantum computers in the future.
Artificial intelligence (AI)
AI has become essential to almost every field today, and large-scale quantum computers have the potential to accelerate AI, and vice versa. It isn’t a simple process—the rules of quantum computing are inherently different and algorithms can’t be “translated” from regular computers to quantum ones. However, AI using quantum computing could revolutionize fields like pattern recognition, computer vision, machine translation, and even make it possible for robots to make optimized decisions in real time, even in new situations.
Combating climate change
Quantum computing can be used in molecular simulation, which has several potential applications for combating climate change. For example, it could help the chemicals industry discover new fertilizer production chemicals that reduce CO2 emissions. Molecular simulation could also design new catalysts to speed up chemical reactions, such as a catalyst to “scrub” carbon dioxide directly from the atmosphere.
The future appears to be here—it may be time to invest in it
Some of these possibilities may seem like science fiction today, but experts estimate that it will take less than a decade for us to start enjoying the enormous application potential of quantum computing. Therefore, investing now, especially in a basket of quantum computing companies as offered by Defiance’s QTUM ETF, has the potential to drive profit in the coming years.
Important disclosures
The Fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Please read carefully before investing. A hard copy of the prospectus can be requested by calling 833.333.9383.
Defiance Quantum ETF: Investing involves risk. Principal loss is possible. As an ETF, QTUM (the “Fund”) may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund is not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index. A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. The Fund is considered to be non-diversified, so it may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. This risk is magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.
The value of stocks of information technology companies are particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition. The possible applications of quantum computing and machine learning are only in the exploration stages, and the possibility of returns is uncertain and may not be realized in the near future.
Defiance Quantum ETF performance, current holdings and other information can be found at defianceetfs.com/qtum/. Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security.
Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.
Defiance ETFs are distributed by Foreside Fund Services, LLC.
