$Qualcomm(QCOM)$ $Honeywell(HON)$ $Rigetti Computing(RGTI)$ $Quantum Computing Inc.(QUBT)$
Quantum computing is rapidly gaining attention, and investors are eager to gain exposure to this fast-evolving industry, which has the potential to disrupt many sectors in the future. This is why quantum-related stocks have been surging, with some seeing increases of 500%, 600%, 700%, and even 900% in recent weeks and months.
Never FOMO The MEME
However, I believe the best way to gain exposure to this trend isn't by chasing stocks with "quantum" in their name, especially those that are skyrocketing without profits and may not see profitability for years. Instead,
Quantum Computing Inc., a company focused on “quantum” computing. While the company is involved in a highly speculative and rapidly evolving industry, its stock (like many other smaller or niche tech stocks) doesn’t have strong business, I categorized it as a "meme stock." $QUANTUM CORP(QMCO)$ has gain significant attention and price surges after Google Quantum computing Story. The business does not have strong fundamentals or business performance.
QMCO
In the case of QMCO, its stock has experienced volatility and price spikes, which could be linked to the broader interest in quantum computing, combined with speculative trading and attention from retail investors. While it might not be a traditional "meme stock" like GameStop or AMC.
QUBT has reported negative Return on Equity (ROE) and Return on Assets (ROA) over the past five years, indicating consistent net losses relative to its equity and assets.
Return on Equity (ROE): As of December 2024, the ROE is -36.56%, reflecting a significant decline from the 10-year average of 1.20%. In the fiscal year ending December 31, 2023, the ROE was -8.27%, showing a deterioration from the previous year's ROE of 362.27%.
Return on Assets (ROA): The ROA reached a 5-year low of -861.6% in December 2019. In the third quarter of 2024, the ROA was -14.02%, compared to -14.32% in the same quarter of 2023, indicating a slight improvement.
Investors should be cautious when considering stocks with such characteristics, as the underlying technology and business viability may not always justify the rapid price fluctuations, and the stock could be subject to market manipulation or large speculative moves.
Invest in Fundamental Strong Company
I suggest investing in a larger company that has a quantum computing division. This approach offers exposure to the growth of quantum computing, while still being backed by a more stable and established company.
One such company is Honeywell, which owns a 54% stake in a quantum company called "Quantum," which specializes in areas like quantum hardware and cybersecurity within quantum computing. Though still private, Honeywell has plans to take this company public, potentially creating massive shareholder value and driving up Honeywell’s stock price. Currently, Honeywell’s quantum division could be worth around $5.4 billion, given its stake in the company.
While Honeywell is underappreciated in the market right now, it has been a steady performer and offers much more than just its quantum division. In addition to quantum computing, Honeywell operates in several lucrative sectors, including aerospace, industrial automation, building automation, and energy sustainability. Notably, activist investor Elliott Management has taken a $5 billion stake in Honeywell, advocating for the company to split into two parts: aerospace and industrial/automation. The potential for this split could unlock significant value, as Honeywell's aerospace division is undervalued compared to its peers, and the industrial automation division could see a similar upside.
The Future And Recognized Major Player
Honeywell International Inc.'s quantum computing subsidiary, Quantinuum, has been identified as a significant asset amid discussions about Honeywell's potential restructuring. Analyst Nigel Coe from Wolfe Research suggests that Quantinuum could be valued at approximately $20 billion, drawing parallels to the substantial growth of other quantum computing firms like IonQ Inc., whose stock has surged by about 226% this year.
Honeywell’s stock currently trades at around $227 per share, but if Elliott’s proposed split occurs, analysts estimate a 50% to 70% upside in the short term, with a potential price range of $330 to $383 per share. Even if the company doesn’t split, Honeywell remains a solid investment with strong management and a solid track record of mergers and acquisitions. With a robust balance sheet and a steady cash flow, Honeywell is in a good position to continue growing.
In January 2024, Quantinuum secured $300 million in funding, bringing its valuation to $5 billion. This recent valuation increase reflects the broader positive momentum in the quantum computing sector.
Quantinuum, formed in 2021 through the merger of Honeywell Quantum Solutions and Cambridge Quantum Computing, is recognized as a leading entity in the quantum computing industry. The company has established strategic partnerships with major players, including Microsoft Corp., and has attracted investments from firms such as JPMorgan Chase & Co., Amgen Inc., and Mitsui & Co.
Future IPO
Honeywell has expressed intentions to explore monetization options for Quantinuum within the next 18 months, potentially through an initial public offering (IPO). This move aligns with Honeywell's broader strategy to unlock value from its various business units.
Conclusion
For those seeking quantum exposure, Honeywell offers a unique opportunity. It’s undervalued in terms of its core business, and its quantum computing stake adds an exciting element to its future growth potential. In the long run, Honeywell is expected to grow earnings at a rate of 8-12% annually, making it a strong buy for both value and growth investors. Overall, I believe Honeywell represents a compelling investment with a lot of upside, especially if the company eventually decides to spin off its quantum business.
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