Image Source: Unsplash

The global quantum computing market is expected to grow at a compound annual growth rate (CAGR) of 38.3% over the next 5 years from its current US$866M in 2023 to $4.4B by 2028, according to marketsandmarkets, which should present an incredible opportunity for investors. The $64M question is, however: "Which AI quantum computing stocks are positioned to make the most of this exceptional growth?". To that end, this article examines the top 10 such stocks in munKNEE's AI Quantum Computing Stocks Index that are heavily involved in the research and development of qubits and whose stock appreciations reflect the success of their efforts to date.

Our AI Quantum Computing Stocks Index

To help you assess the merits of the 10 constituents in the Index on a comparative basis the Index provides:

• descriptions of each of the 10 companies;
• how each of their stocks performed:
  • last week, in descending order,
  • since their peaks in July,
  • and YTD;
• 3 valuation metrics (defined at the end of the article):
  • their forward price-to-sales ratio (PSR) - the median sector ratio is 2.5;
  • their price/earnings-to-growth (PEG) ratio - the median sector ratio is 1.8;
  • their enterprise values-to-earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA) - the median sector ratio is 13.6;
• and the most recent news on each of the companies.

(Keep in mind that the data below changes daily as the stock prices change. All the stocks have market capitalizations in excess of $50B except IonQ @ $2.9B and are trading in excess of $50/share in USD except IonQ @$14.29.)

1. Lam Research (LRCX): up 2.7% last week; down 10.2% since July; up 60.2% YTD
   • LRCX is a leading manufacturer of equipment used to fabricate semiconductors focusing on the etch, deposition, and clean markets, which are crucial steps in the semiconductor manufacturing process.
   • Forward Price-to-Sales Ratio: 5.9 (above sector median)
   • Price/Earnings-to-Growth Ratio: 5.0 (above sector median)
   • Enterprise Value-to-EBITDA Ratio: 18.6 (suggests the stock is overvalued compared to its peers)
   • Read:
     • Unveiling Lam Research's Value: Is It Really Priced Right? A Comprehensive Guide
     • What Makes Lam Research an Attractive Investment?
     • Nvidia vs. Lam Research: Which Hot Stock Is More Attractive?
2. Broadcom (AVGO): up 1.7% last week; down 4.5% since July; up 58.0% YTD
   • 15% of its revenue is directly involved in booming generative AI applications such as its market-leading switching and routing chips needed to direct data around and between data centers, along with custom ASIC compute offload engines that are now being incorporated into non-Nvidia AI accelerators like Alphabet's tensor processing units.
   • Forward Price-to-Sales Ratio: 10.2 (much above sector median)
   • Price/Earnings-to-Growth Ratio: 1.8
   • Enterprise Value-to-EBITDA Ratio: 17.2 (suggests the stock is very overvalued compared to its peers)
   • Read:
     • Direct AI Exposure Pushed Broadcom in Q2
     • Will Broadcom Benefit from Explosive Growth in Generative AI?
     • Should You Hold Broadcom for the Long-Term?
3. Splunk (SPLK): up 0.8% last week; up 36.6% since July; up 71.8% YTD
   • SPLK offers a unified security and observability platform that helps security leaders fortify their organization's digital resilience.
   • Forward Price-to-Sales Ratio: 6.3 (above sector median)
   • Price/Earnings-to-Growth Ratio: 1.8 
   • Enterprise Value-to-EBITDA Ratio: 27.9 (suggests the stock is very overvalued compared to its peers)
   • Read:
     • Why Is Cisco Buying Splunk? 
     • Analysis: Cisco's $28 billion Splunk deal may ignite software deal frenzy
4. Applied Materials (AMAT): up 0.6% last week; down 6.9% since July; up 49.8% YTD
   • AMAT is the world's largest supplier of semiconductor manufacturing equipment to help make nearly every chip in the world. The firm's systems are used in nearly every major process step with the exception of lithography.
   • Forward Price-to-Sales Ratio: 4.3 (above sector median)
   • Price/Earnings-to-Growth Ratio: 2.3 (above sector median)
   • Enterprise Value-to-EBITDA Ratio: 14.5 (suggests stock is fairly valued)
   • Read:
     • Unveiling the Investment Potential of Applied Materials Inc: A Comprehensive Analysis
     • A Look At The Fair Value Of Applied Materials, Inc.
     • 4 big analyst picks: Applied Materials a ‘Top Pick’ at Wolfe
     • Are Robust Financials Driving The Recent Rally In Applied Materials, Inc.'s Stock?
5. Nvidia Corporation (NVDA): down 0.7% last week; down 2.7% since July; up 211.1% YTD
   • NVDA is the leading designer of graphics processing units required for powerful computer processing.
   • Forward Price-to-Sales Ratio: 20.9 (much above sector median)
   • Price/Earnings-to-Growth Ratio: 1.3 
   • Enterprise Value-to-EBITDA Ratio: 40.0 (suggests the stock is very overvalued compared to its peers)
   • Read:
     • Nvidia is the AI king, but threats to its reign abound
     • Earnings Growth & Price Strength Make Nvidia a Stock to Watch
     • The Bull Market in AI Is Just Getting Started: 3 Smart Reasons to Buy Nvidia Stock Right Now
6. Micron Technology (MU): down 1.1% last week; down 3.1% since July; up 40.9% YTD
   • MU began sampling its own HBM3 chips in July which are a 50% improvement in bandwidth over currently available solutions. Mass production is expected to begin early in calendar 2024, and Micron expects meaningful revenue from this product in fiscal 2024.
   • Forward Price-to-Sales Ratio: 3.6
   • Price/Earnings-to-Growth Ratio: No Earnings
   • Enterprise Value-to-EBITDA Ratio: 12.5 (suggests stock is undervalued)
   •  Read:
     • Micron Technology Stock Upgraded by Deutsche Bank On Improved Industry Outlook
     • Micron Technology, Inc. Is a Trending Stock: Facts to Know Before Betting on It
     • AI Is Ending Micron's Downturn
     • Micron Technology to Report Fiscal Fourth Quarter Results on September 27, 2023
7. ONSemi (ON): down 2.0% last week; down 17.3% since July; up 41.8% YTD
   • ON provides intelligent sensing and power solutions that enable the electrification of the automotive industry, empowers fast-charging systems, and propels sustainable energy for the solar strings, industrial power, and storage systems.
   • Forward Price-to-Sales Ratio: 4.6 (above sector median)
   • Price/Earnings-to-Growth Ratio: 1.6
   • Enterprise Value-to-EBITDA Ratio: 12.1 (suggests stock is undervalued)
   • Read:
     • ONSemi Is On Target For New Highs In 2023
     • ONSemi Q2 earnings: ‘bigger trends are in our favor'
     • Onsemi Shares Reach Record High on Demand for Auto and Industrial Chips
8. Advanced Micro Devices (AMD): down 2.0% last week; down 8.1% since July; up 68.0% YTD
   • AMD focuses on CPUs and GPUs and is a major player in the embedded chip market. In June it introduced a chip it calls "the world's most advanced accelerator for generative AI." 
   • Forward Price-to-Sales Ratio: 7.4 (much above sector median)
   • Price/Earnings-to-Growth Ratio: 1.3
   • Enterprise Value-to-EBITDA Ratio: 42.7 (suggests the stock is very overvalued compared to its peers)
   •  Read:
     • Calculating The Fair Value Of Advanced Micro Devices, Inc.
     • Will AMD Be a $1 Trillion Stock by 2030?
     • Wall Street Analysts Think Advanced Micro Is a Good Investment: Is It?
9. Marvell Technology (MRVL): down 3.5% last week; down 19.2% since July; up 64.2% YTD
   • MRVL is the semiconductor industry’s only data infrastructure specialist partnering with its customers and the open ecosystem to move, process, store and secure the world’s data architectures for the better.
   • Forward Price-to-Sales Ratio: 8.4 (much above sector median)
   • Price/Earnings-to-Growth Ratio: 2.6 (above sector median)
   • Enterprise Value-to-EBITDA Ratio: 25.7 (suggests the stock is very overvalued compared to its peers)
   • Read:
     • Marvell Technology, Inc. Reports Second Quarter of Fiscal Year 2024 Financial Results
     • Chipmaker Marvell Sees AI Revenue Soaring In The Coming Years
     • Marvell Technology Is the Latest Tech Firm to Benefit From AI
10. IonQ (IONQ): down 5.5% last week; down 25.8% since July; up 314.2% YTD
    • IONQ currently has 2 quantum systems: an 11-qubit system launched in 2020 and a 25-qubit system launched in 2022 and has a 32-qubit system under development which is beta testing with researchers.
    • Forward Price-to-Sales Ratio: 151.2 (suggests the stock is very overvalued compared to its peers)
    • Price/Earnings-to-Growth Ratio: No Earnings
    • Enterprise Value-to-EBITDA Ratio: Negative
    •  Read:
      • 5 ‘Strong Buy’ Quantum Computing Stocks You Should Be Loading Up On Now
      • Ride the Quantum Computing Wave to Riches With These 3 Promising Stock Picks
      • IonQ and BearingPoint Bring Quantum Consulting to the European Market
      • Zapata AI and IonQ Collaborate to Advance Generative AI Research

The above 10 quantum computing stocks were up 1.8% last week, on average, are down 4.4% since the end of July but are still up 73.7% YTD.

Definitions

• The Price-to-Sales ratio (PSR) describes how much someone must pay to buy one share of a company relative to how much that share generates in revenue for the company. and, as such, determines whether its stock is cheap or overpriced in comparison to its peers. While the ideal ratio depends on the company and industry, the ratio is typically good when the value falls between one (1)  and two (2) and a ratio of less than one (1`) is even better. The semiconductor sector median ratio is 2.47.
• The price/earnings to growth ratio (PEG ratio) is considered to be an indicator of a stock's true value. A PEG lower than 1.0 is best, suggesting that a company is relatively undervalued. The semiconductor sector median ratio is 1.77.
• The enterprise values-to-earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA) gives a clear sense of a company's real monetary worth without the market distortions of the stock price and unavoidable non-cash expenses that are outside a company’s control. A lower EV/EBITDA ratio than the average for the particular industry in which a company operates is considered to indicate that the stock is probably undervalued. The semiconductor sector median ratio is 13.64.

Excluded from the above list are:

• Quantum computing and related companies that are listed exclusively on stock exchanges other than Nasdaq,
• some nano- and micro-cap companies,
• and the following large tech stocks with quantum divisions: Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Baidu (BIDU), IBM (IBM), Alibaba Group (BABA), Honeywell International (HON), Tesla (TSLA), and Adobe (ADBE)

Investing In Quantum Computer Stocks

It is still too early to determine the best quantum computing stocks to invest in because the technology is rapidly advancing with several competing approaches so, rather than choosing a specific stock, investors might want to buy:

• the iShares Semiconductor ETF (SOXX), which invests in stocks of 35 companies operating across information technology, semiconductors and semiconductor equipment sectors and has expenses of $0.35 or
• the Invesco PHLX Semiconductor ETF (SOXQ), which invests in stocks of 33 companies operating across information technology, semiconductors and semiconductor equipment sectors and has expenses of $0.19.

More By This Author:

The Conservative "Cannabis" Stocks Index Continued To Decline Last Week
Psychedelic-Compound-Based Drug Stocks Continue To Fall
Micro/Small Cap AI Stocks Index Is Still Up 110% YTD