By Mackenzie Tatananni
Inside IBM's main research center rises a maze of silver towers, each 22 feet tall. Through their vented flanks, you catch glimpses of blinking lights and the shadows of wires. The machine's three-chambered heart -- comprised of three processors, each no larger than a fingernail -- is hidden from view.
Step closer and you hear the contraption appearing to breathe, a tinkling sound like wind chimes emanating from the cooling mechanism that keeps its innards colder than outer space. It's the sound of the future.
This mysterious machine is the IBM Quantum System Two, the company's most advanced quantum computer. Powerful systems like the System Two operate based on the principles of quantum mechanics, the science behind atoms, molecules, and subatomic particles. Quantum technology theoretically allows computers to do things beyond the reach of conventional digital computers, from rapidly processing vast swaths of data to simulating highly complex chemical reactions to tackling the most difficult of mathematical problems. In Japan, a recently installed Quantum System Two is modeling the electronic structure of chemical compounds found widely in nature, a utility that has broad applications in chemistry.
Investor interest in quantum computing has exploded over the past year. Soon after the United Nations dubbed 2025 the International Year of Quantum, Alphabet's Google unit unveiled a dazzlingly fast quantum chip. Then the quantum pure plays took off. Stocks like Rigetti Computing, IonQ, and D-Wave Quantum went on wild rides, and some of the gains stuck. D-Wave is up 237% for the year, far outstripping a 22% gain for the tech-heavy Nasdaq Composite.
If the pure plays are the current belles of the ball, IBM could be the long-term keeper for investors.
Big Blue has been working on quantum technology for decades. It has shipped more quantum computers than any other company, and it now has major breakthroughs in its sights. Equally important, its array of other businesses -- cloud computing, IT consulting, artificial intelligence, and various hardware and software products -- provides valuable ballast that can keep the company on course even if quantum doesn't pan out.
Eventually, quantum computers could supplement conventional computers to make processes such as drug discovery and materials design faster and easier. But, scientists say, large-scale commercialization may still be five or 10 years away. Any serious competitor has to be ready to go the distance. IBM looks ready.
"We want to be at the foundation of quantum computing," Jay Gambetta, the head of IBM Research, tells Barron's over the hum of the Quantum System Two. "We want to win."
The Thomas J. Watson Research Center sits on a sprawling campus in Yorktown Heights, N.Y., some 40 miles from Manhattan. The center is the hub of IBM Research, the company's research and development unit, and it is engaged in exploring emerging technologies such as artificial intelligence, semiconductors, and quantum computing. As a clear sign of quantum's importance, the System Two sits at the heart of the center, partially surrounded by a glass wall.
Quantum technology, like quantum mechanics itself, is both complex and elusive. Digital computers operate on bits, with values of 0 or 1. Quantum computers work from quantum bits, or qubits, that can be 1, 0, or any value between those two. The manipulation of those qubits is challenging, but the end result is that the qubits can contain far more information on matters of uncertainty and probability than their digital counterparts.
Down a winding hallway at the center, researchers test quantum algorithms in a small lab that resembles a garage. An eyeball scan is required to enter, and no photographs are permitted. The room is full of quantum systems in various stages of assembly. Pieces of hardware are scattered about. Researchers quietly work away, fiddling with parts of the machine.
"Thanks to the culture that we have, the scientists are very passionate about what they do," Gambetta says. "They happily disagree with me all the time." Gambetta knows this culture well: He headed the quantum effort for six years before rising to IBM Research's top post in August.
IBM has long put a premium on research, starting in 1911 with the founding of the Computing-Tabulating-Recording Company. That became International Business Machines in 1924 under the leadership of Thomas J. Watson Sr., the research center's namesake. In time, the company's three initials stood alone, a widely recognized symbol of technological innovation.
IBM has pivoted several times in its life span. In the 1940s, it shifted from mechanical accounting machines and punch-card systems to electronic, stored-program computers and mainframes. It was an early entrant in personal computers, but in 2005, facing slim profit margins and shrinking market share, it sold its PC division to China's Lenovo. It began a major push into IT consulting in the 1990s.
At the turn of the 21st century, IBM and Stanford University jointly demonstrated the first implementation of Shor's Algorithm, a quantum algorithm that can factor large numbers into their prime components. That raised some big risks: The ability to execute the algorithm underpins the fears that quantum computers will be able to crack the encryption that has protected much of the world's data for decades. But more broadly, the breakthrough proved that quantum computing is more than just theory. It was a massive milestone for the industry.
"We've had a long, proud history of mathematics here." Gambetta says. "Think of algorithms as the foundation."
IBM then began pushing quantum out of the lab and into the world. To date, the company has deployed 85 quantum systems, for use by more than 300 organizations, typically laboratories and educational institutions. That is up from last year's tally of 75 deployments for 250 organizations.
The figures include both computers, which the company defines as systems with over 100 qubits, and devices with fewer than that amount. IBM has deployed 25 systems with more than 100 logical qubits. Google, perhaps IBM's closest quantum rival, has deployed just two systems of that size.
IBM aims to lead on the quantum software front as well as in hardware. Gambetta says Qiskit, an open-source software stack for quantum computers that is based on the popular coding language Python, is one of its most popular offerings. At last check, Qiskit had been downloaded 13 million times and used to run over 3.8 trillion circuits on IBM Quantum systems.
Despite the progress, there are still plenty of puzzles for Gambetta's team to solve. The biggest challenge for IBM and the industry is devising a quantum computer that can maintain normal operations even in the presence of errors, a concept known as fault tolerance. Today's machines are too error-riddled for broad commercialization. The problem is in the qubits, whose quantum states are particularly sensitive to changes in the physical environment, meaning anything from electromagnetic fields to heat. That, in turn, causes computational errors.
It's unrealistic to imagine a future where quantum machines are completely error-free, but creating a computer that can maintain normal operations even in the presence of these disturbances would be a big step forward. IBM looks to be making real progress: In October, IBM scientists showed how they could use relatively inexpensive classical hardware from Advanced Micro Devices to interpret the results of a quantum error-correction algorithm. IBM called it a step toward building "practical and realistic" hybrid systems.
What's more, IBM has vowed to deliver a fault-tolerant supercomputer called IBM Quantum Starling by 2029. The company aims for the machine to be able to conduct 100 million quantum operations using 200 logical qubits, which IBM says will give Starling 20,000 times more processing power than today's leading quantum systems. Starling will be built by connecting multiple, smaller chips, which lays the foundation for even larger scalable systems in the future.
"We're really looking forward to them getting Starling out because the consensus in the industry is that it could cross a chasm in terms of usability," says Melius Research analyst Ben Reitzes.
IBM is already looking beyond Starling -- to a much larger system called Blue Jay. Scientists say quantum computers have to get larger to become more useful. Scaling, however, requires more qubits, and a higher number of qubits typically correlates with more errors, which gets back to the need for fault tolerance. IBM has resolved to overcome these obstacles and launch Blue Jay sometime after 2033.
In addition to making quantum computers larger, IBM is looking to connect them. In November, IBM and Cisco Systems announced a partnership to build a prototype for a quantum network. While classical computers routinely communicate by networks -- the most basic being the internet -- quantum computers don't have this ability. Connectivity thus looms as another necessary milestone before commercialization.
Eventually, IBM's quantum computing division "could be a company maker," says Melius' Reitzes . "Right now, it's not big enough to matter, but it has the potential to be a multiple-billion-dollar business." IBM, which booked $62.8 billion in revenue last year, hasn't yet broken out its quantum revenue.
Since the industry is at such an early stage, it's difficult to calculate just how big the revenue opportunity could be -- not just for IBM, but as a whole. A widely cited McKinsey report released earlier this year forecasts industrywide sales of anywhere from $45 billion to $131 billion by 2040. Boston Consulting Group forecasts an even higher range, between $90 billion and $170 billion.
Morgan Stanley analyst Erik Woodring sees a $50 billion market by 2040 and expects IBM to capture about 20% of that. "In speaking with management, they feel relatively confident in that number," Woodring says.
He thinks IBM's history bodes well for its chances in quantum. "IBM has effectively exacted change across every major technology computing cycle over the last century," Woodring explains. "You have a history of technology innovation -- even if you aren't the sustainable winner in those end markets, you can deliver a system that is clearly differentiated versus others."
He likens IBM's role in the quantum computing industry to that of Apple in smartphones. Apple has created what Woodring calls an "indestructible ecosystem" by controlling its own hardware, software, and services. IBM appears to be doing much the same in quantum. The 20% figure, which IBM declines to discuss, is similar to what Apple has managed to capture in the global smartphone market.
A lot still has to go right for IBM to fulfill its promise: fault tolerance, scaling, and all the challenges that come with creating a new industry. However, it isn't a do-or-die proposition for IBM, Woodring points out. If the quantum division were to fall short of its targets, IBM's other businesses would keep chugging along and help pick up the slack.
"If quantum ultimately faces some form of demise," he adds, "it's going to be hard for any company that's involved, but IBM is in a much better position relative to a lot of the start-ups."
For now, IBM's quantum research is clearly benefiting from its parent's deep pockets. The company spent some $7.5 billion on R&D last year, or 12% of total revenue. IBM doesn't break out quantum's share of that, but in all, it's more than what Microsoft spent as a percentage of total revenue in its most recent fiscal year. The same goes for Nvidia, which diverted just 7.2% of total revenue to research.
The pure plays, for their part, are racing to get the technology to market to offset continued losses and keep their businesses moving ahead. Quantum Computing, for instance, posted just $384,000 in revenue in its third quarter, while operating expenses more than doubled to $10.5 million from the prior year.
While their stocks can see big jumps from enthusiasm for quantum, the pure plays also experience major drops. The volatility is evident in their beta, or volatility, numbers. With a beta of 2.54, IonQ's price is more than twice as volatile as the market, which has a beta of 1. Rigetti has a beta of 2.12; D-Wave, 1.24.
IBM's diversification helps keep IBM's stock relatively stable. Its beta stands at 0.62, indicating that it's less volatile than the market itself. And lately it has been showing real strength. After years as a laggard, the stock gained about 41% this year, thanks not only to advances in quantum but also strength in AI and the cloud. The rise has topped those of the three major indexes as well as IonQ, which has gained 30%.
The pure plays, of course, aren't IBM's only competitors. Alphabet, Amazon.com, and Microsoft all have quantum agendas. Even Nvidia has aspirations in the space, where it aims to contribute to the development of hybrid systems. IBM, for its part, won't so much as name any of its rivals.
"I think there's enough space for many winners, with the end goal of making sure that quantum is an industry," Gambetta says. "If we don't have people creating their own algorithms, creating their own technical services, creating their own software, I think this industry will fail."
He may be right. But if one company does end up as No. 1, don't be surprised if it's IBM.
Write to 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.
(END) Dow Jones Newswires
December 10, 2025 01:00 ET (06:00 GMT)
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