Cabot Stock of the Month Issue: September 14, 2023

Market Review

We’re still playing the seesaw game in the markets—up, down, up, down, etc. I don’t see any need for excess worry; just a little caution that we buy the right stocks. I’m still very long-term bullish, and why not?

The economy continues to strengthen; 79% of the companies in the S&P 500 Index reported positive earnings surprises for the second quarter, and the third quarter looks even better; home building continues to be strong, although low inventory levels continue to pressure resales. Home prices appear to be stabilizing, and employment remains strong.

The soothsayers seem to think that the Fed will keep rates steady at its next meeting, and the probability of a recession has fallen to 16%. What’s not to like?

Meanwhile, growth stocks continue to lead value, although value stocks have become positive for the year.

And sector-wise, Communication Services (up 39.53%), Technology (38.85%), and Consumer Discretionary (30.65%) are the big winners so far in 2023. The losers are Utilities (down 10.38%), Consumer Staples (-3.82%), and Healthcare (-2.79%).

For now, stay steady; keep loving those dividend stocks; but keep your eye out for some potential big winners, such as the tech stock I’m recommending today.

Feature Recommendation- IonQ, Inc. (IONQ): Moving Technology Along at Warp Speed

It seems to me that we are embarking on another sweeping technology shift. The emerging applications for artificial intelligence are bringing us autonomous vehicles, medical diagnostics, and optimizing our navigational requests; datafication is turning our human behavior patterns into data used to predict sales in every industry; 3-D technology can now create bones and food, some car batteries under development can be charged in 10 minutes; and computer power is escalating at an exponential rate.

Each of these technological innovations is amazing and will undoubtedly bring fortunes to many companies and millions of their investors. And honestly, since I’m not a techie, my interest lies in how to make money from them.

However, Tyler Laundon, Chief Analyst of Cabot Early Opportunities and Cabot Small-Cap Confidential, is both. He thoroughly researches and understands many of these technology trends, and he’s just recently brought an interesting company to the attention of his subscribers— IonQ, Inc. (IONQ)—a business that is making quantum computers.

These computers are set to revolutionize technology, and IonQ is at the forefront of the quantum computing industry. The company was founded in 2015 by Chris Monroe and Jungsang Kim (after 25 years of academic research) with $2 million in seed funding from New Enterprise Associates, a license to core technology from the University of Maryland and Duke University. Their goal—"taking trapped ion quantum computing out of the lab and into the market.” By 2018, using the additional $20 million they raised from GV, Amazon Web Services, and NEA, they built two of the world’s most accurate quantum computers, and they were off and running!

Since then, more money flowed in from partnerships with big names like Microsoft and Amazon Web Services, and the company has brought quantum computing to the cloud.

Tyler told me he is intrigued by IonQ, as “It’s a relatively early-stage company using quantum computing technology to address challenges too complex for traditional computers. There are a lot of subtle patterns out there, like finding fraud in financial transactions or simulating the behavior of an individual atom in a molecule that even the most powerful supercomputers can’t do. But quantum computers can. They are big and expensive, and there are a couple of approaches.

“IonQ uses the trapped ion approach, which means using lasers to manipulate ions trapped in a vacuum. Customers can go to IonQ to get an actual quantum computer, pay to access its Quantum Cloud, or get compute resources via public cloud providers that partner with IonQ to provide Quantum Computing-as-a-Service (QCaaS). There are a lot of layers to the story and a lot of paths the company and stock may take in the coming years. For risk-tolerant investors I think it’s worth a closer look.”

Here is Tyler’s original recommendation of IonQ:

“IonQ was founded by quantum computing pioneers Chris Monroe (U Maryland) and Jungsang Kim (Duke). Both are on the White House’s National Quantum Initiative Advisory Committee. There is a bit of a tech race heating up as the U.S. tries to open up the lead it has over China. Select European countries are hard at it too.

“IonQ has rights to intellectual property (exclusive, no royalties due) from both the University of Maryland and Duke, who have equity positions in the company.

“The ultra-high-level pitch for IonQ is that the company approaches building quantum computers using the trapped ion approach. This means trapping an ion in a vacuum (glass boxes work well) then using lasers to manipulate the ions. Don’t try it at home!

“IonQ’s computers have quantum capacity of 32 qubits and operate roughly 20 algorithmic qubits. Hard to wrap your mind around those specs but the bottom line is that it’s competitive performance. And a 64-qubit system is in development.

“Sales are limited right now but growing briskly. Revenue of $2.1 million in 2021 grew by 430% to $11.1 million last year and should be up around 80% to $20 million this year. That said, a few deals can move the needle so any estimates should be taken with a grain of salt here.

“In terms of how IonQ makes money, right now the bulk of revenue comes from working with clients to develop quantum solutions and laying the groundwork to use that technology in their organizations in the near future.

“IonQ also hosts its own Quantum Cloud platform so users can pay to access that. And it has partnered with the public cloud providers who provide Quantum Computing-as-a-Service (QCaaS), much like they do with other software and computing resources.

“Lastly, IonQ charges for direct access to quantum computing resources for clients that don’t want to wait in the queue to access them via public cloud. Over time this revenue source will likely fade once the QCaaS capacity takes off.

“A few partners/customers include Fidelity, Accenture (ACN), Goldman Sachs (GS), Volkswagen (VLKAY) and Softbank. And in late June IonQ disclosed that QuantumBasel (Switzerland quantum hub) signed a deal to establish and manage a European quantum data center, complete with two advanced IonQ quantum computers. That latest deal drove management to increase its 2023 bookings estimate by 25%, to a range of $45 million to $55 million.

“Stepping back, IonQ has the potential to become a tech force. What that potential translates into in terms of market cap size over the coming quarters and years is highly uncertain. This is a speculative stock. Shares could be up a few hundred percent or more by the end of this year, cut in half, or do absolutely nothing.

“Whatever the future holds, I think it’s an interesting story and opportunity today, so we’ll jump in with a half-sized position and see what happens. Buying a half leaves us the option to average down if IONQ takes a dive, but the story remains intact.

“IONQ came public in November 2020 via SPAC merger and traded around 10 for almost the next year. Then shares rocketed 350% to hit an all-time intra-day high of 36 in November 2021. There was a lot of speculation going on, and as the market bubble burst, IONQ came down, hard. Shares moved below 5 last May and bottomed at 3 on December 29, 2022. The trend has been much better since. IONQ was back to 5 in February, ran above 10 in May after the Q1 earnings report then broke above 13 on June 28. Momentum is building and shares jumped above 15 yesterday. Again, this is a speculative name and share price movement will be very unpredictable, both to the upside and downside. BUY HALF”

In his latest update on the shares, Tyler said, “IonQ (IONQ) reported with no big surprises, but continued execution is helping shares today. Revenue of $5.5 million was about a million more than the few analysts following the stock expected. There are indications that the hardware order from Quantum Basel is helping both on the bookings and technology validation fronts. It doesn’t hurt that the AQ 29 platform just launched a full seven months ahead of schedule.

“Big picture, the list of ‘believers’ is growing larger. And it should be noted that Morgan Stanley is now following the stock and boosted their price target from 7 to 16, acknowledging both that valuation in this situation is somewhat irrelevant while future opportunities, risks, AI story, etc. are what investors are focusing on. This is a big possible reward, big possible loss type stock. Invest accordingly.” Aggressive.

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About the Analyst: Tyler Laundon, Chief Analyst of Cabot Early Opportunities and Cabot Small-Cap Confidential

Tyler’s small-cap and growth-oriented portfolios favor a high allocation to stable, high-growth companies, upon which he layers strategic purchases of higher-risk investments. His research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones. He first began publishing his analysis of small-cap opportunities in 2009. Since then, he has closed out dozens of doubles for subscribers, including 28 since the beginning of 2020. Tyler holds a B.S. and MBA from The University of Vermont, where he graduated Valedictorian. He has been a long-time contributor to Wall Street’s Best Investments, has been quoted by U.S. News & World Report, and has presented investing ideas and strategies for The Money Show and Bloomberg Markets LiveINSIGHTS.

Nancy: In your recent posting for Cabot Wealth Daily, you talked about what was needed for a year-end rally. Would you please reiterate your thoughts for my subscribers?

Tyler: We need to see an improving macro environment with higher confidence that the Fed’s target interest rate will not go any higher (at the very least) and start to be reduced by mid-to-late 2024 (would be a better scenario). The obvious messaging there is that it would mean the Fed is no longer trying to tamp down growth in the economy. But equally important, it would mean some of the price pressures and labor issues in the economy have abated enough to make for a more predictable operating environment for companies. That would likely drive higher investor confidence, help open up capital markets (i.e., more IPOs, M&A, etc.) and generally create a more risk-on environment for investors.

Nancy: The Fed raised rates in July, after a brief pause, which has hurt several sectors, including Financials. Please give us your thoughts on which sectors might benefit from 1) a rate increase this month, or 2) a rate decrease this month.

Tyler: I’m going with option three Nancy, a skip (i.e., no hike, or cut). Current market odds sit at 92% that the Fed will hold their target rate range of 525 - 550bps right where it is at the September 20 meeting. Right before the Fed’s blackout period began Logan (a voter) suggested a skip could be appropriate and Williams (a voter) suggested policy is in a good place. In aggregate, the recent economic data suggests a skip is appropriate, in my view. Though we need to get August CPI on September 13 before we can relax. Honestly, I don’t think a skip will have a huge impact on any areas of the market because Fed officials are almost guaranteed to repeat their “careful, data-dependent” mantra and refuse to take the bait when asked about when they could potentially cut rates. Which will leave us about where we are right now. I think there’s a much better chance that the market will react to the November 1 meeting since we’ll have a longer string of data by then.

Nancy: Tech stocks are continuing to lead all sectors so far this year. Both your Cabot Early Opportunities and Cabot Small-Cap Confidential include a nice selection of tech stocks. With the gains adding up, are you tempted to begin taking more profits in this sector?

Tyler: Not yet. It can be hard to hold some of these stocks when they’re up 20%, 50% or more in a few months or quarters, and then sell off 15% (or thereabouts) when the broad market pulls back. But if we step back and look at the investing environment, we’re in we realize it’s not a crazy bull market but rather (hopefully) the early stages of a recovering market that should have the tailwind of lower interest rates within six to twelve months. I’d like to have decent gains going into that market since that’s when the benefit of compounding returns will really drive outperformance. That said, if there are growth stories that fizzle out or company-specific reasons to sell a stock I won’t hesitate to do so.

Nancy: Do you have any favorite sectors right now? If so, why, or why not?

Tyler: I’ve always loved software and think now is a fantastic time to pick up select software stocks. They are trading below historical valuations, interest rates are high, the macro environment isn’t great, and a lot of investors are still skeptical of the group, especially after so many high flyers fell to pieces in 2022. Yet at the same time, we’re starting to see the more resilient players emerge from the pack. These are the times to establish positions in those names and wait two, three, five years for really significant gains to materialize. I also think that among smaller companies there are really interesting opportunities in some areas of fintech, and in industrials. In most cases, I’m talking about innovative, younger companies that are doing something new, better, faster, or more efficiently than legacy players.

Nancy: I noticed that you have been diversifying your portfolios in the past few months, adding companies in the cosmetic, industrials, and sporting goods arenas. And your watch list is also adding some interesting sectors. Would you share your thought process behind these additions?

Tyler: I’ve noticed that in certain, specific areas so so-called “best of breed” stocks are really standing out from the “also rans.” So, I’m trying to add those to my portfolios if their growth prospects are strong enough. At the same time, there are some relatively narrowly defined market segments where virtually all of the stocks are working, such as Engineering & Construction, so I’m also trying to add select names in those areas too. Naturally, all of this is intended to give us exposure to a diversified group of really strong stocks that can handle market gyrations without causing too much discomfort and that tap into different trends that are somewhat independent of each other.

Nancy: Small-cap stocks are looking interesting these days, with growth stocks up more than 13% and value stocks up more than 5% so far this year. Do you think this is the start of a new bull market in small caps?

Tyler: I think we’re in the pre-stages of a small-cap bull market. The seedlings are there, but not yet germinating. There are still too many crosscurrents in the U.S. economy that are holding back some of the more heavily weighted areas of the broader small-cap indices. We need to see evidence that the Fed can begin to cut its target interest rate so some of these more rate-sensitive areas of the small-cap universe can stop being a drag on overall index performance. Once that happens there’s certainly a lot of potential, especially given small caps have been relative underperformers for some time. That all said, investors looking for a more growth-oriented, diversified small-cap play should consider the Vanguard Small Cap Growth ETF (VBK). It has more of what’s working and less of what isn’t than core ETFs, such as the iShares Core S&P Small Cap ETF (IJR).

Nancy: Are there any sectors or sub-sectors that you currently see as oversold?

Tyler: Small-cap health care (PSCH) and utilities (PSCU) have been absolutely destroyed lately. And small-cap financials (PSCF) are also rather weak. I think there are opportunities in those areas for value-oriented investors. However, that’s not my specialty. I’ve been looking more into the MedTech (IHI) space for higher-growth small caps that have been unduly punished as well as specialty finance companies that blend both software and payments. Both of those areas have several growth-oriented stocks trading at what appear to be reasonable price levels.

Nancy: What are the three to five most critical challenges to growth of the stocks in your portfolio right now?

Tyler: Almost all of the challenges are big picture, macro things and not company-specific. First is the high interest rate environment. The 10-year yield is hovering around 4.2% and that puts a lot of downward pressure on growth in the economy and stock valuations, not to mention it makes fixed-income a compelling alternative to stocks. Second, investor sentiment isn’t super bullish. People remain concerned about inflation, China, the U.S. deficit and budget, and other big-picture geopolitical things. Combine that with higher interest rates and Fed officials who keep saying “there is more work to be done” and investors just don’t have a huge risk appetite to pursue higher-growth names. On a more company-specific level, management teams of the companies I follow are constantly being asked about how their businesses are being “affected by the macro.” While they’re mostly saying they’re cautious but doing “fine” it seems those that are showing greater ability to cut and/or control costs and grow profits are doing better.

Portfolio Updates

Tom Hutchinson, Chief Analyst of Cabot Dividend Investor and Cabot Income Advisor, updated his take on Qualcomm Inc. (QCOM), saying, “This chipmaker company stock has been moving higher again after a steep August plunge. It’s up 6% over the last week. It’s a rough patch for Qualcomm. Revenue and earnings are expected to decline 19% and 34%, respectively, for fiscal 2023. But the market tends to look forward. Smartphone sales may be close to bottoming as they are expected to increase in 2024 and Qualcomm is expected to resume earnings and revenue growth. This slump was expected and that’s why QCOM has underperformed. But it is cheap now. BUY”

In other news, shares of Qualcomm rose when the company announced that it will provide Apple (AAPL) with 5G chips for the iPhone through 2026. Qualcomm will provide its Snapdragon 5G Modem‑RF systems for Apple’s smartphones. It sounds like a reprieve for QCOM, as Apple had previously announced that it would be making its own modems by next year.

Lastly, QOM announced that it was extending its technology partnership with BMW, providing its Snapdragon Digital Chassis Solution to BMW’s new vehicles, for 5G connectivity. Continue to Buy.

Devon Energy (DVN) shares have risen in the past few weeks, as interest in the stock has picked up, primarily due to its healthy (6.79%) dividend yield and rising oil prices.

I’m giving Devon a little more rope, continuing to Hold.

Bruce Kaser, Chief Analyst of Cabot Turnaround Letter and Cabot Value Investor, recently updated his view on Citigroup (C), saying, “Citigroup (C) shares have continued to slide, now down about 8% year to date and about 38% since our November 2021 initial Buy recommendation. Interim dividend receipts of $3.59/share have softened the loss to about 31%, but this is still sizeable. What is Citi’s problem, how low can the shares reasonably go, and when will the shares start to recover?

“At its core, Citi’s problem is that earnings are not growing much, nor appear likely to grow much for the foreseeable future. Earnings per share look stalled in the $5.50-$6.50 range.

“Citi’s net interest income is stalled as its loan growth and its ability to earn a profit on its lending are weak. The bank is retreating from some geographic markets and business lines, weighing on growth. Also, Citi has less of a franchise in its markets—minimal in the consumer segment and weak in the corporate/business segments—so it needs to work harder (higher expenses) to earn its revenues. This franchise effect also suggests that it needs to pay higher interest rates for its deposits, which constrains its net interest margin. Citi is large and strong, so it is considered a ‘go-to’ bank when smaller banks struggle, but it clearly is not JPMorgan in deposit-gathering prowess.

“What is keeping us in Citi’s shares? One is the valuation. At 48% of tangible book value, the shares are remarkably inexpensive. Tangible book value is a rough proxy for liquidation value, so investors are buying Citi shares at a large discount.

“An old-school but still useful valuation metric for financials is that they trade at a price/tangible book value (P/TBV) multiple that is about 10x their return on tangible book value. Citi’s 7% return on tangible book value warrants somewhere around a 70% P/TBV multiple using this rule of thumb. So, the shares are cheaper than they should be.

“JPMorgan produces a roughly 20% return on tangible book value, so it should theoretically trade at around a 2.0x P/TBV multiple. The actual 1.9x multiple is close enough. If Citi generated a stronger profit, or even if it showed the prospect of earning significantly more, its shares would rise accordingly.

“We see limited downside in Citi’s shares as weak fundamentals are already reflected in both the valuation and earnings estimates. Shares of any stock can decline for any reason at any time, but unless the economy or yield curve move sharply against Citi, the shares should hold their value.

“We remain confident that CEO Jane Fraser’s turnaround of the bank will eventually work. It will just be a grind for the next year or two. But a potential double in the shares combined with limited downside is highly appealing, especially since we are being paid a Treasury-like 5.1% dividend yield to wait.”

Bruce’s opinion is backed up by a recent Wells Fargo report on Citi, saying, “The Wall Street bank’s shares are trading at prices that imply its balance sheet could take a big hit from asset losses, analysts led by Mayo wrote. But that seems unlikely given the current strength of the company’s assets and its relatively high capital levels, the analysts wrote.

“Even for Citi, this is getting to be too much,” the analysts wrote. They are predicting that the low valuation will spur Citi to begin buying back shares, as much as $22 billion, over the next 10 quarters.

Wells Fargo predicts that “the bank’s share price could rise to around $55 over the next 12 months.”

If you don’t now own the shares of Citi, I will recommend that you add some to your portfolio at this low valuation, but if you are currently a shareholder, let’s change our status to Hold.

Cannabis stocks just received a shot in the arm, according to Michael Brush, Chief Analyst of Cabot Cannabis Investor. Michael reported that “the Food and Drug Administration (FDA) and its parent agency Health and Human Services (HHS) recommend “rescheduling” under the Controlled Substances Act of 1971. HHS and the FDA now say cannabis should be moved to Schedule III from Schedule I.

“This is big news because it would liberate cannabis companies from onerous federal taxes. The proposed change would release them from part of the Internal Revenue Service code known as ‘280E’ which bars cannabis companies from deducting most expenses against federal taxes. ‘This is really a game changer,’ says Kim Rivers, the CEO of Trulieve (TCNNF). Cannabis companies pay 70% of their revenue in taxes.

“The other key is that the HHS Schedule III recommendation signals the administration of President Joe Biden really is serious about further cannabis law reform. This will speed up progress on other bullish reforms—including changes at the state level.”

Even before this announcement, analysts were changing their tune about cannabis stocks, with Morningstar analyst Kristoffer Inton pushing his target price to $17.

For its second quarter, Curaleaf (CURLF) reported revenues of $339 million a year-over-year increase of 4%, driven by good performance in Nevada, Arizona, Connecticut, New Jersey, and Massachusetts.

Inventory reduction, pricing pressures and the reclassification of certain expenses reduced adjusted gross margin to 44%.The company ended the quarter with cash of $85 million and debt of $1 billion.

The company reported that it is launching Zero Proof, a new brand of THC drinkables. Its first product is Squeeze, which is now available at all Curaleaf locations in Illinois.

With a reformulated natural sweetener and “a truer-to-flower experience,” it produces effects faster than traditional edibles and can be felt in as little as 15-30 minutes.

With the good news, shares of Curaleaf have almost doubled. As with Citi shares, if you own it, Hold, but if you don’t, the shares are a Speculative Buy.

Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader, has sold Shift4 Payments (FOUR), following a breakdown in the shares. I agree. Sell.

Tyler Laundon updated his view on TransMedics Group (TMDX), saying “The stock isn’t doing much as investors digest the Summit Aviation acquisition and await more details about the revenue and earnings, capex, etc., trajectory. HOLD THREE QUARTERS”

I concur. Continue to Hold.

Tom Hutchinson reported on Brookfield Infrastructure Partners (BIP), saying, “The tough times for safe stocks continue. Despite strong operational performance in a period of shrinking earnings for most companies, BIP continues to wallow near the 52-week low. But these periods of bizarre underperformance never last. Sure, the stock could languish for a while longer, but it is highly likely to be a lot higher a year from now. Brookfield is targeting 10% average earnings growth and 5% to 9% distribution growth over the next several years. (This security generates a K-1 form at tax time). BUY”

I agree. BIP’s dividend yield of 4.82% gives us some security (and cash!) while we wait for the shares to appreciate. Buy.

Bruce Kaser also shared his latest thoughts on NOV, Inc (NOV), commenting, “We see the consensus view as overly pessimistic, given the company’s strong position in an industry with improving conditions, backed by capable company leadership and a conservative balance sheet.

“The price of West Texas Intermediate (WTI) crude oil jumped 8% to $87.21/barrel, as Saudi Arabia said it would extend its voluntary cut of 1 million barrels/day until the end of the year. The price of Henry Hub natural gas fell 6% to $2.60/mmBtu (million BTU). Natural gas prices are driven by domestic demand, as import/export volumes are minuscule, although supply disruptions in Australia are leading to incrementally higher local prices in the U.S.

“NOV shares rose 4% in the past week. NOV shares have 15% upside to our 25 price target. The dividend produces a reasonable 0.9% dividend yield. BUY”

I agree; Buy.

Carl Delfeld, Chief Analyst of Cabot Explorer, updated his outlook on International Business Machines (IBM), saying, “Shares again gained a couple of points this week as in Japan a new partnership was launched between Rapidus, which is backed by the government and Japan’s biggest corporations, and IBM to develop advanced chips. Last week, IBM unveiled Watsonx, a cutting-edge, enterprise-focused AI and data platform designed to harness the power of advanced AI capabilities for businesses. Buy a Half.”

I’m excited about IBM’s AI business and love its dividend yield of 4.47%. Buy.

Mike Cintolo refreshed his view on our latest recommendation, Noble (NE), commenting, “Cyclical stocks have been hit hard this week, likely because of the continued march higher of interest rates (causing economic fears) and, today, some China wobbles; combined, that’s slapped NE around after its stretch higher last week, albeit on light volume. Even so, oil prices remain strong above $85 per barrel, and the stock has done nothing wrong, trading back into its prior range. We’re not complacent, and should the market and cyclical names go over the falls, we’ll make sure any loss remains reasonable. But the combination of booming earnings and cash flow coming up, as well as a nascent shareholder return program, should keep investors interested—we filled out our position last week and are staying our Buy. BUY”

I agree. Continue to Buy.

Portfolio

*Aggressive (A), Moderate (M), Conservative (C)

ETF Strategies

Currently, Adaptive Alpha Opportunities ETF (AGOX), iShares U.S. Healthcare ETF (IYH), First Trust Water ETF (FIW), iShares US Energy (IYE), ALPS Medical Breakthroughs ETF (SBIO), Vanguard Dividend Appreciation Index Fund (VIG), Vanguard U.S. Momentum Factor ETF (VFMO), Invesco Semiconductors ETF (PSI) and Communication Services Select Sector SPDR Fund (XLC) are showing positive returns.

I’m making no changes to the portfolio this month.

Our Watch List has three names remaining:

O’s Russell Smallcap Qlty Divd ETF (OUSM)
GX U.S. Infrastructure Development ETF (PAVE)
Russell Top 200 Ishares ETF (IWL)

And I’m adding one more to our Watch List, Vanguard Small Cap Growth Index Fund (VBK), one of the ETFs Tyler recommended in our interview.

I may pull the trigger and add one of our “watches” to our portfolio in the next week or two, so stay tuned.

Quantum Computing: A Big Leap in Problem-Solving

I don’t know about you, but when someone says “quantum” anything, my eyes glaze over! But you know what, if we don’t want to be left behind in this next tech evolution, we need to learn about it, darn it! I said the same thing about Internet of Things, the cloud, and big data, too, and we were able to figure those out, so let’s go!

At its most basic, Quantum computing “is a rapidly-emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.”

Right now, big data and complex operations are mostly handled by supercomputers, very large machines that can run huge calculations and use advanced artificial intelligence. But they are binary code-based machines using 20th-century transistor technology.

According to a recent article in Time magazine, “binary ‘bits’—switches either on or off, denoted as 1s and 0s—to process information, while the “qubits” that underpin quantum computing are tiny subatomic particles that can exist in some percentage of both states simultaneously, rather like a coin spinning in midair. This leap from dual to multivariate processing exponentially boosts computing power. Complex problems that currently take the most powerful supercomputer several years could potentially be solved in seconds. Future quantum computers could open hitherto unfathomable frontiers in mathematics and science, helping to solve existential challenges like climate change and food security.” In fact, in 2019, Google’s quantum computer in development, Sycamore, is said to have performed a calculation in 200 seconds, compared to the 10,000 years that one of the world’s fastest computers, IBM’s Summit, would take to solve it.

And like supercomputers, quantum computers are big. Picture this, courtesy of IBM: “A quantum processor is a wafer not much bigger than the one found in a laptop. And a quantum hardware system is about the size of a car, made up mostly of cooling systems to keep the superconducting processor at its ultra-cold operational temperature.”

The following graphic gives you an idea of how quantum computing may result in practical applications.

And international markets will also be affected, as you can see from the following pie chart:

Quantum algorithms create multidimensional computational spaces to solve complex problems. Most every profession, from industrial chemists, to

engineering firms, financial institutions, and global shipping companies are now analyzing how quantum computers could solve important problems in their fields.

And quantum computing is evolving rapidly, due to the work of global companies such as IBM, Microsoft, Google, D-Waves Systems, Alibaba, Nokia, Intel, Airbus, HP, Toshiba, Mitsubishi, SK Telecom, NEC, Raytheon, Lockheed Martin, Rigetti, Biogen, Volkswagen, and Amgen.

Google’s goal is to have its quantum computer up and running by 2029. IBM says it should be ready before the end of this year.

The potential is incredible, as the following graphic shows.

With the enormous marketplace in front of it, IonQ seems to be in the right place at the right time. As these shares are speculative, let’s go easy, and not overload your portfolio. But if you can, take a bite (or is that byte?). This stock is an Aggressive, Speculative Buy.

Portfolio

*Aggressive (A), Moderate (M), Conservative (C)
**Purchase price reflects a 3-for-1 stock split

The next Cabot Money Club Stock of the Month issue will be published on October 12, 2023.