By Martin Baccardax and Mackenzie Tatananni

Seasoned investors, and quite a few cynics, often warn about the dangers of the taxi-driver trade. When a market in something becomes so hot that you're hearing about it from the front seat of your Uber, it might be time to sell.

Quantum computing is having that kind of moment.

The United Nations deemed this year the International Year of Quantum. This week, the Nobel Prize in Physics was awarded to a trio of scientists focused on quantum mechanics. Stocks tied to the nascent technology are soaring.

While everyone from retail investors to day-trading speculators is talking about the quantum trade, others are asking the inevitable follow-up question: Is this a bubble doomed to burst?

Financial market bubbles tend to form when the value of an asset class inflates to levels that far exceed what it can actually deliver.

Investors paid enormous sums for tulip bulbs in the early 17th century, thinking their prices would rise indefinitely and fund the construction of houses and businesses. A single failed auction in 1637, however, burst the world's first recorded speculative bubble and painfully reminded investors that all the bulbs could really do was grow flowers.

Quantum computing promises a lot more than colorful foliage, with Bank of America describing the powerful qubits it seeks to create as possibly "the biggest revolution for humanity since discovering fire." But that doesn't mean investors aren't at risk of getting burned.

A collection of the four so-called pure-play quantum computing stocks -- Rigetti Computing, D-Wave Quantum, IonQ, and Quantum Computing -- has risen nearly fourfold on average over the past year. However, the technology has limited commercial use and generates relatively little revenue.

To make matters more complicated, it's unclear when these companies will earn enough to turn a profit. IonQ once said it was targeting profitability by 2030. But since it appointed a new CEO, that timeline hasn't been reaffirmed. Other companies, like Rigetti, haven't committed to a target.

For now, the stocks trade largely on sentiment and headlines, as was the case during Nvidia's annual developer conference, when vague timelines triggered investor panic.

Those four companies generated sales of around $26 million over the three months ending in June. They now have a collective market value of around $55 billion. That is more than American industrial icon General Motors, which sold around $47 billion worth of cars over the same period.

In that respect, it's easy to see why some are worried about a bubble forming in quantum stocks. On the other hand, others say investors don't appreciate how transformational the technology is likely to become.

"How do we value a technology that will change everything, create new drugs and materials, increase longevity, and enhance encryption and logistics, etc?" says Bank of America analysts led by Haim Israel in a note published this summer.

They see a quantum market worth $2 trillion by the middle of the next decade, with applications ranging from encryption to deep learning and the real-time usage of Big Data analysis. A widely cited McKinsey report forecasts a more muted range of $28 billion to $72 billion by 2035.

That is a wide gap in potential and a long time from now. Doubly so for an investor holding stocks valued at eye-watering levels compared with overall sales. Rigetti, for example, has a market capitalization of around $14 billion, but $8 million in annual revenue.

Tom Hulick, CEO of Strategy Asset Managers, says today's valuations are simply "too divorced from reality" for a long-term investor. "There is no ceiling for how high retail speculators can push a stock in the interim," he added.

The technology has yet to address some of its principal challenges, too. Particles like trapped ions and photons are a fundamental part of a quantum computer, and make up the basic units of information, called qubits. Qubits are sensitive to environmental noise or any disturbances at the atomic level, which is why quantum computers have a propensity for errors.

The technology is expected to become more widely deployed by the end of the decade, when companies like International Business Machines plan to release fault-tolerant systems that can catch and correct mistakes as they occur.

Meanwhile, the bubble might keep inflating until it is tested by the cold reality of fundamentals. And by then, your taxi driver may have moved on to something else.

Write to Martin Baccardax at martin.baccardax@barrons.com and Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 08, 2025 14:43 ET (18:43 GMT)

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