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Editor’s note: Today, Stephen sits down with RiskHedge Executive Editor Chris Reilly to talk about what many are calling the next big tech trend after artificial intelligence (AI).
As a reminder, there’s still time to take advantage of your special invitation from Stephen to join our elite RiskHedge All-Access program. Details here.
Chris Reilly: Stephen, I think a lot of investors have already “moved on” from the AI megatrend. Have you seen the recent headlines? It’s all about quantum computing.
“Is Quantum Computing the Next Big Tech Trend?”
“How Quantum Computing Is Already Changing the World”
... and countless others touting quantum computing stocks that could make “early investors rich.”
First, can you explain what quantum computing is, and then share your thoughts on investing in it?
Stephen McBride: The science behind quantum computing is mind-bending. In the simplest terms, it takes advantage of quantum mechanics to make computers 1,000X faster than they are today. It’s like jumping from the candle to the lightbulb.
If we ever achieve far-out goals like controlling the weather, colonizing Mars, or reversing human aging, quantum computing will likely be the driving force.
Google (GOOG), IBM (IBM), and a handful of startups are working to create the most powerful computers the world has ever seen.
But while there’s been progress, the technology is still in its infancy.
More important, from what I can tell, no company is making real money from quantum computing today—and they probably won’t be anytime soon.
So, it’s too early for me right now. Not “investible.”
Chris: I know you always like to see companies—great businesses—profiting from a megatrend. In fact, if they’re not profitable, they don’t make it into your strict Disruption Investor portfolio...
Stephen: Exactly. Nvidia (NVDA) is a good example, a stock we first talked about five years ago. AI was hyped up. The ultimate buzzword. Of course, nothing like the level we’ve seen post-ChatGPT. Nonetheless, AI was the “mating call” for companies trying to attract investor dollars.
But here was the reality at the time:
Very few companies were actually building intelligent AI systems. I wrote about how venture capital firm MMC Ventures studied 2,830 AI startups. In 40% of cases, it found no evidence AI was an important part of their businesses.
You only needed to ask one simple question to weed out the fakes: What percentage of a company’s sales come from AI? Only a handful were making any money from this budding disruption. The one company with a booming AI business was Nvidia.
Chris: Got it. So don’t rush into quantum computing.
Stephen: I hate to see investors rush into an underdeveloped corner of the market when we’ve got a perfectly good megatrend, right in its moneymaking sweet spot, staring us in the face.
The AI megatrend is nowhere near over!
Data center spending is expected to top $200 billion in 2025. And analysts expect the global capacity of hyperscale data centers to grow 3X over the next six years to meet the world’s AI needs.
While Nvidia is the most well-known winner from all the money being thrown at data centers today, it’s far from the only company profiting.
As I’ve been saying, a lot of spending and innovation will shift toward the lagging parts of the data center equation: cooling equipment, storage, next-gen fiber optic cables, and so on.
Don’t “skip” the rest of the AI boom. Instead, focus on the AI companies making money for investors. There are quite a few.
Peter Lynch (on my Mount Rushmore of investors) has said, “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
I would say more money has been lost chasing a “hot new thing” that distracts from a lucrative opportunity in your lap. AI is that opportunity, now and for at least the next year.
Chris: What if readers want to know more about quantum computing, even though we’re still early?
Stephen: My colleague Chris Wood has been studying quantum computing for a very long time.
He agrees that while we’ve seen billions invested in the tech, it’s just not practical to buy any quantum computing stocks yet. But he’s got a couple on his radar.
Chris—for readers who don’t know—is my partner on Disruption Investor. But he also runs Project 5X, which focuses on exciting micro-caps with 5X potential.
Earlier this year, Chris highlighted two of his favorite quantum computing stocks on his watchlist. He calls these “breakthrough disruptors.”
Chris is way more in tune with the tiny companies in this space than I am, so I’d start there. Project 5X members will be the first to know if and when it’s time to pull the trigger on those.
Chris: Thanks, Stephen.
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