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Quantum computing generates about $1 billion in revenue today and has a potential “total addressable market” of up to $198 billion by 2040, according to analyst Kevin Garrigan and his colleagues at Jefferies.
Garrigan and his team began coverage of the quantum industry by rating three companies: D-Wave Quantum (buy), IonQ (buy), and Rigetti Computing (hold).
All three companies emerged from US academic research labs more than 10 years ago, but financially they still look like well-funded startups. D-Wave and IonQ are both growing but not profitable. The former reported earnings in Q3 increased 100% to $3.7 million but had a net loss of $140 million; the latter revealed Q3 earnings of $39.9 million, up 222% on a net loss of $1.1 billion. Rigetti reported the decline in Q3 earnings by 18% to $1.9 million and a loss of $201 million, but also disclosed new future contract agreements worth $11.5 million.
In “classical” computing, computer chips and software solve problems using “bits” that represent information as 1 or 0, like a light switch that can only be turned on or off. Quantum computers, in contrast, use the principles of quantum uncertainty in subatomic physics to represent information as “qubits” that can be 1, 0, or both at the same time. This ability to present information in “superposition” (almost, in parallel), makes quantum computers potentially very powerful.
“A classical computer is like reading every book in the library one by one to find the answer. A quantum computer is like reading all the books at once,” the Jefferies team wrote in a note to clients seen by luck. A fully functioning quantum computer could, in theory, solve complex problems in 5 minutes Classical computers would take 10 septillion years to process to resolve.
The downside is that the physics and engineering required to make them work have only recently moved out of the theoretical realm and into reality.
However, “as quantum moves from the lab to applied pilots, a special components industry is emerging for components, such as cryogenics (dilution refrigerators), lasers/optics, and control electronics, which increasingly supply hardware,” the analyst said. That industry is funded by governments and large technology companies like Google and IBM.
Jefferies collected three different estimates of the potential size of the quantum market:
- McKinsey revenues are projected to grow from $4 billion in 2024 to a potential $198 billion in 2040.
- Boston Consulting Group: the “direct hardware/software/services market” is estimated to reach $170 billion by 2040.
- and the Yole Group said the market will grow from $954 million in 2024 to $17.4 billion in 2035.
The wide range of estimates reflects the promises and doubts surrounding the industry. If they succeed these companies could create extraordinary advances in finance or molecular biology that are currently beyond the power of normal computer chips. But, as shown by the heavy losses on the balance sheets of all three companies, that promise remains commercially unfulfilled.
