Quantum computing is on the brink of transforming multiple industries and could soon become a multi-billion-dollar market. With its wide range of applications in computing, energy, finance, and beyond, its potential is hard to ignore.
Given this backdrop, tech-centric investors could consider adding these fundamentally sound quantum computing stocks: Alphabet Inc. (GOOGL), International Business Machines Corporation (IBM), and Honeywell International Inc. (HON) for significant gains.
But what exactly is a quantum computer? Unlike traditional computers, which use bits to process information as either 0s or 1s, quantum computers use quantum bits or qubits. These qubits can exist in multiple states simultaneously, allowing quantum computers to process information in ways that current supercomputers cannot. For instance, they can facilitate the development of better batteries for electric cars and the discovery of new drugs.
According to McKinsey, quantum computing has the potential to take problem-solving to a "whole new level," estimating a $1.3 trillion opportunity by 2035. The technology's ability to accelerate drug discovery, improve financial data processing, tackle climate change, enhance cybersecurity, and address other complex issues far surpasses the capabilities of conventional computers.
Haim Israel, Head of Thematic Investing Research at Bank of America, has called quantum computing “a revolution for humanity bigger than fire, bigger than the wheel.” With such a bold endorsement, it's clear that quantum computing stocks have substantial growth potential.
Moreover, the global quantum computing market is forecasted to reach $143.44 billion by 2032, exhibiting a CAGR of 26.5%.
With that in mind, let us examine the fundamentals of the above-mentioned stocks in detail:
Alphabet Inc. (GOOGL)
Valued at $2.12 trillion, GOOGL is the powerhouse behind a spectrum of tech innovations and various products and platforms worldwide. It operates through Google Services; Google Cloud; and Other Bets segments.
On May 2, 2024, GOOGL and MongoDB, Inc. (MDB) collaborated to enhance Gemini Code Assist and deliver improved application development and modernization recommendations on MDB’s leading developer data platform.
This platform, trusted by millions of developers and customers for critical business applications, will benefit from Gemini Code Assist's ability to provide developers with valuable insights on MongoDB code, documentation, and best practices. This partnership is set to accelerate feature prototyping and streamline application development.
For the fiscal second quarter, which ended on June 30, 2024, GOOGL’s total revenues increased 13.5% year-over-year to $84.74 billion, while its operating income rose 25.5% from the year-ago value to $27.43 billion. The company’s net income amounted to $23.62 billion and $1.89 per share, up 28.6% and 31.3% from the prior-year quarter, respectively.
The consensus revenue estimate of $86.25 billion for the fiscal third quarter (ending September 2024) represents a 12.5% increase year-over-year. The consensus EPS estimate of $1.85 for the ongoing quarter indicates a 19.1% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 38.3%, closing the last trading session at $171.54.
GOOGL’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GOOGL has an A grade for Sentiment and a B for Stability and Quality. It is ranked #12 out of 53 stocks in the B-rated Internet industry. Click here to see the additional ratings for GOOGL (Growth, Value, and Momentum).
International Business Machines Corporation (IBM)
IBM, with a market cap of $176.99 billion, is engaged in addressing the hybrid cloud and artificial intelligence (AI) opportunity with a platform-centric approach focused on providing client value through a combination of technology and business expertise. It operates through four segments: Software; Consulting; Infrastructure; and Financing.
On July 23, IBM and ASMPT announced an extension of their partnership to advance chiplet packaging technologies. Under this renewed agreement, the companies will collaborate on advancing thermocompression and hybrid bonding techniques for chiplet packages, leveraging ASMPT’s latest Firebird TCB and Lithobolt hybrid bonding tools.
This technology breaks down system-on-chips (SOCs) into smaller, modular chipsets, offering potential benefits that can include improved energy efficiency, faster system development cycle time, and reduced costs.
On July 18, IBM partnered as a new partner in the Superconducting Quantum Materials and Systems Center (SQMS), a major national and international research Centre hosted by Fermilab, dedicated to advancing critical quantum technologies. This collaboration addresses key hurdles in quantum computing, communication, and large-scale deployment of superconducting quantum platforms.
In the fiscal second quarter that ended on June 30, 2024, IBM’s total revenue increased 2% year-over-year to $15.77 billion. The company reported a gross profit of $9.1 billion, indicating a 5.3% growth from the prior year quarter.
IBM’s non-GAAP income from continuing operations came in at $2.27 billion, up 13.5% year-over-year, while its non-GAAP EPS grew 11.5% from the prior-year quarter to $2.43. In addition, the company’s free cash flow rose 24.3% from the year-ago value to $2.10 billion.
Analysts expect IBM’s revenue for the third quarter (ending September 2024) to grow 2.1% year-over-year to $15.06 billion, while its EPS for the same period is expected to increase marginally year-over-year to $2.22. Moreover, the company topped the EPS estimates in each of the trailing four quarters, which is promising.
IBM shares have surged 32.8% over the past nine months and 17.5% year-to-date to close the last trading session at $192.14.
IBM’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Quality. Within the Technology - Services industry, it is ranked #12 out of 76 stocks. Click here to see IBM’s ratings for Growth, Value, Momentum, Sentiment, and Stability.
Honeywell International Inc. (HON)
HON engages in aerospace technologies, building automation, energy and sustainable solutions, and industrial automation businesses globally. It has a market cap of $133 billion and operates through four segments: Aerospace; Honeywell Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions.
On July 26, the company’s Board of Directors declared a quarterly dividend of $1.08 per share. This dividend will be paid on September 6, 2024, to shareholders on record as of August 16, 2024. HON pays an annual dividend of $4.32, which translates to a yield of 2.13% at the current share price. Its four-year average dividend yield is 2.08%.
On July 10, HON announced the acquisition of Air Products and Chemicals, Inc. (APD)’s liquefied natural gas (LNG) process technology and equipment business for $1.81 billion in an all-cash deal. This purchase will enhance HON’s energy transition capabilities, providing a comprehensive end-to-end solution for global customers.
The acquisition is expected to drive diversified growth and innovation in aftermarket services and software and will immediately accret to the company's sales growth, segment margin, and adjusted EPS in the first full year of ownership.
For the second quarter of 2024, which ended on June 30, HON's net sales increased 4.7% year-over-year to $9.58 billion, while the operating income margin expanded by 10 basis points to 20.7%. Its operating income stood at $1.98 billion, up 5% year-over-year, while its attributable net income amounted to $1.54 billion, representing an increase of 3.8% from the last year. Also, the company’s adjusted EPS increased 8.3% year-over-year to $2.49.
Building on this quarter's momentum and successful acquisitions, the company updated its 2024 outlook. HON anticipates full-year sales to range between $39.10 billion and $39.70 billion, with 5% to 6% organic growth. It also forecasts adjusted EPS in the range of $10.05 to $10.25, reflecting a solid increase of 6% to 8%.
Street expects HON’s revenue and EPS for the fiscal third quarter (ending September 2024) to increase 7.7% and 10.3% year-over-year to $9.92 billion and $2.50, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of HON have gained 11.7% over the past nine months to close the last trading session at $204.75.
It’s no surprise that HON has an overall rating of B, equating to a Buy in our POWR Ratings system. It also has a B grade for Stability and is ranked #34 out of 78 stocks in the A-rated Industrial – Machinery industry.
Beyond what is stated above, we’ve also rated HON for Growth, Value, Momentum, Sentiment, and Quality. Get all HON ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GOOGL shares fell $0.12 (-0.07%) in premarket trading Thursday. Year-to-date, GOOGL has gained 22.94%, versus a 16.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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