Quantum Stocks Have Cratered. Here’s How I’d Play Them

Quantum stocks have been absolutely demolished amid the latest tech-focused market pullback. With the AI trade, which some pundits view as being in a “bubble” of sorts, letting a bit of air out while the cryptocurrency markets experience a bloodbath of their own, it certainly seems like the appetite for some of the market’s more speculative names is fading fast.

At this juncture, those who bought into the quantum stocks at the peak probably feel like it’s the beginning of the end.

Still, I think that 55-60% plunges are to be expected from stocks that have more than doubled in just a few months’ time. While it may be painful for recent buyers of just about any quantum stock, the fact remains that many of them are still up significantly on a year-to-date basis, at least at the time of this writing.

Nvidia helped jolt the speculative tech trade, but only temporarily

With Nvidia (NASDAQ:NVDA | NVDA Price Prediction) posting blowout numbers on Wednesday, it felt like the speculative trade would live on, at least until the broad markets rolled over intraday, wiping out a huge chunk of gains enjoyed in the morning. There was absolutely nothing wrong with the Nvidia numbers.

If anything, there might be an opportunity now that investors are getting a strong result, not only for “free” but at a slight discount now that shares have shed more than 3% as of the end of Thursday’s turbulent session. Though Nvidia isn’t a big quantum innovator, I do think that its recently revealed NVQLink product is a relatively lower-risk way to benefit from any sort of quantum leap without having to risk a quantum plunge of similar magnitude.

In any case, as top quantum stocks like D-Wave Quantum (NASDAQ:QBTS) continue to free-fall, investors looking for an entry point might wish to look to the $18-20 range of support. Undoubtedly, if the level is broken, there’s really no telling how much further the quantum innovator can fall. And with no price-to-earnings (P/E) ratio to go by, I do think that a continued sell-off will be most unkind to the quantum names.

International Business Machines is how I’d play the quantum leap

When it comes to the quantum plays, these huge drawdowns in excess of 50% are par the course. And while the latest decline has only wiped out close to three months’ worth of gains, I do think that those who can’t handle the risks with the quantum pure-plays may wish to consider some of the mature quantum innovators in the space, such as International Business Machines (NYSE:IBM).

Undoubtedly, the $271 billion blue-chip titan may not be the quantum stock you were expecting, but it’s doing some really great things in the space. And if your stomach can’t handle the extreme drops, perhaps Big Blue is worthy of nibbling at on the latest 8% drawdown.

Recently, the company pulled the curtain on Quantum Nighthawk and Quantum Loom processors. With a solid quantum roadmap and dedication to achieving what the firm refers to as a “quantum advantage,” I’d look to take advantage of any extreme selling in tech and quantum. Add the quantum networking plans into the equation, and it’s tough to overlook the major player as it advances the field.

Sure, such a mega-cap tech titan won’t have as much upside in the face of big breakthroughs compared to the likes of a D-Wave Quantum. That said, with less beta and a valuation that I believe is easier to get behind, I’d much rather be in the safer, lower-volatility name at a time like this, at least until the pace of negative momentum slows. Additionally, there’s a nice 2.33% dividend yield and a modest 23.4 times forward price-to-earnings (P/E) multiple to get behind.

The bottom line

In short, I have no idea what’s in store for the quantum pure-plays as some names, like D-Wave Quantum, near support levels. They’re hard to value, but they might soon become enticing from a technical perspective for those who have iron stomachs.

Personally, I’d be more comfortable in a less choppy, mature quantum play like International Business Machines, which is also doing some great things in the space. Even Nvidia, on weakness, might be intriguing for the hint of quantum exposure following its NVQLink unveil, which might be a great way to tie together innovations from across the broader quantum scene.