Quantum computing investing is incredibly hot right now, as this exciting technology is starting to have some significant breakthroughs. Additionally, artificial intelligence (AI) remains a huge theme in the market, as the buildout of this life-altering technology is just getting underway. Many investors want to take advantage of both trends, but there are only a few ways to do it.
My favorite company leading in the quantum computing sector and the AI arms race is Alphabet (GOOG -0.54%) (GOOGL -0.49%). Alphabet has a ton going for it, and it is a great way to capitalize on both trends.
Google’s breakthrough triggered a quantum computing investing boom
Alphabet can likely be credited with kicking off the latest quantum computing investment interest round. In December, Google (a subsidiary of Alphabet) announced that its Willow quantum computing chip had completed a computing task that would have taken the fastest supercomputers 10 septillion years (10, with 25 trailing zeros) to complete. That’s a ridiculous number, but what’s even more critical is the technology that was used to complete the task.
Quantum computing isn’t like classical computing. It uses qubits instead of bits, which inherently has errors. Bits use 0s and 1s to transmit information, making computing errors impossible. However, quantum computing uses qubits, which can better be described as the probability of a calculation being either a 1 or a 0. This makes quantum computing infinitely more powerful, as the amount of information it stores from a qubit is far more than a bit.
However, errors can develop in large calculations because it isn’t a cut-and-dry 1 or 0. Google has implemented a novel way to solve this issue, allowing it to compute this benchmark accurately. Even so, Google made no claims that this was a commercially useful activity. This test was to showcase the computing power of quantum computing, not to do anything useful. Google describes the usefulness of its test in this chart below:
Image source: Alphabet.
As a result, we’re still years away from commercially viable quantum computing technology, although some quantum computing companies are already using their technology for research in the field. Regardless, widespread quantum computing is still a ways away, and investing in a company like Alphabet that has the upside of quantum computing combined with the current AI arms race spending makes a ton of sense.
Alphabet is a huge beneficiary of the AI spending trend
While Alphabet is competing in the generative AI battle with its Gemini model, it’s benefiting more from the various companies that are spending heavily to gain access to AI computing power.
Google Cloud, Alphabet’s cloud computing wing, is the primary way it benefits from this trend. Clients who can’t justify buying a dedicated AI server filled with high-end AI accelerators turn to cloud computing providers to rent some of their capabilities. This allows them to scale up or down the computing power they need, allowing them to be flexible. Because Google Cloud has a massive audience base, that computing power is then put to use by another client.
This industry is a win-win for everyone involved, which is why the cloud computing market is expected to be worth more than $2 trillion by 2030.
Google Cloud provides its clients with the best computing power available and was one of the first to get Nvidia‘s generation Blackwell GPUs up and running. Business is so good in the cloud computing realm that Alphabet has started construction on 11 new data center sites. With cloud revenue increasing 30% year over year to $12 billion in Q4, it’s clear that all of this spending is benefiting Alphabet significantly.
This is one of the biggest ways Alphabet can benefit from AI, but it’s also integrating its AI tools into its legacy search business alongside the advertising tools that its clients have access to. Alphabet is set to be a big winner in the AI space, even if it isn’t leading the generative AI arms race. Throw in the upside of quantum computing, and the narrative behind Alphabet’s stock looks promising.
GOOGL PE Ratio (Forward) data by YCharts
However, the market doesn’t value Alphabet the same way, and the stock trades for an attractive 21 times forward earnings. Considering the upside Alphabet has from its various growth sectors, this seems like a no-brainer price to pay for the stock. It is a great one to stash away as the AI arms race and quantum computing races unfold.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
