How Narratives Have Driven Quantum Computing Valuations

Quantum Computing stocks (IONQ, RGTI, QUBT, QBTS) all traded dramatically lower today during the NYSE open after Nvidia’s CEO, Jensen Huang, shared his thoughts on that side of technology.

Following Jensen’s remarks on quantum computing, these companies experienced the following drops:

• IONQ: -39.00%

• RGTI: -45.51%

• QUBT: -43.34%

• QBTS: -36.13%

You might be wondering: what in the world did Nvidia’s CEO say that caused these companies to drop over 30% each—and some close to 50%?

Let’s talk about it.

The Remarks

"… and developing algorithms that we can use someday. And when is that someday? We’re probably somewhere between — in terms of the number of qubits, order of - 5 orders of magnitude or 6 orders of magnitude away. And so if you kind of said 15 years for very useful quantum computers, that’d probably be on the early side. If you said 30 is probably on the late side.” - Jensen Huang

Qubit - A qubit is like a classical bit, but instead of being just 0 or 1, it can be both at the same time. Imagine a light switch that can be both on and off at once. This ability to be in multiple states allows quantum computers to process much more information at once compared to regular computers.

In simple terms, Jensen essentially stated that the practical use case for quantum computing is likely still 20–25 years away from the development of a “highly useful quantum computer.”

But what even is that use-case?

Quantum Computing ~ How is it useful?

I’ll try my best not to make it too complicated, as quantum computing is still a very new technology. I agree that it’s still far from providing the value many have created a narrative around.

Quantum computing isn’t about replacing classical computers but rather about addressing the problems that classical systems struggle with. Let’s talk about those challenges.

1. Optimization Problems

Quantum computers are able to explore multiple possibilities simultaneously, making them powerful for solving optimization problems. A quick example of this is a maze: there are multiple paths you can take. As a human, you have to test each path one by one. A classical computer can do this faster than a human but still tests each route sequentially. A quantum computer, on the other hand, doesn’t literally test all routes at once. Instead, it leverages quantum properties like superposition and interference to explore many potential solutions in parallel, eventually arriving at the best solution faster than classical methods. This ability to explore many possibilities at once is a key advantage of quantum computing in certain types of problems.

2. Drug Discovery

Quantum computing can “model molecular structures and chemical reactions with unparalleled precision.” This capability accelerates drug discovery processes and the design of new materials with unique properties, such as superconductors.

3. AI & Machine Learning

As I mentioned before, quantum computers can process vast amounts of data more efficiently (maze example). This enables faster training of AI models and solving complex optimization tasks within machine learning.

Quantum computing can go much deeper than the examples I’ve given of its use cases, but they show that there is real value in this type of technology, which combines ideas from the world of physics. However, there are many challenges associated with this technology that many people overlook.

I discussed how, in today’s world, narratives drive price movements. This is exactly what happened with quantum computing stocks. The narrative of quantum computing being the future drove prices to insane valuations, but what that narrative didn’t include were the challenges associated with quantum computing.

The Challenges

As mentioned Quantum computing does face many challenges, this is the main reason we saw the drop in todays prices as this wasn’t calculated into the narrative that created these insane valuations for these quant companies.

1. The Noise

Qubits are highly sensitive to their environment, which this leads to many errors and loss of information, which limits the time quantum computers can perform useful calculations.

2. Error Correction

Since qubits are highly sensitive, this creates many errors that require error correction. When more resources are needed, it costs more money. The issue with these errors is that you can’t rely on just one qubit to represent the information; you’ll need to use multiple qubits to check and correct errors. As stated, this process requires significantly more resources and adds to the complexity of building a scalable quantum computer.

3. The Timeframe

This is not necessarily a huge challenge, as all great things take time, but it’s the main reason we saw valuations of quantum computing companies crash or trade towards their actual “fair value” based on real data.

As stated earlier, remarks from a high-level CEO like Jensen Huang, who mentioned that it will most likely be about 25 years before we see any meaningful value come from quantum computing, shift the narrative. Quantum computing has been pushed up by the talk of major use-cases, without properly factoring in when we will actually see these implementations.

To End

To end, this once again shows how markets change in terms of what’s been created and what is dying off, but the way humans think never does. Humans want to be involved in the next “big story,” just like with the tulip crash, the internet in the early 2000s, meme stocks, and memecoins. This is another example of how the creation of narratives (which, in my opinion, is driving prices more than ever) shapes markets and their valuations.

Fundamentals still matter though.. Today was a great example of things coming back down to earth and somewhat trading back toward “fair value” based on fundamentals. However, it’s important to note that just because you have the fundamentals, the narrative behind it can still drive prices to extremes.

We see this every… single… day.

I hope you find this write-up helpful. Have a great rest of your week.

To my traders: trade safely, manage risk, and live to fight another day.

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