Quantum stocks experienced an explosive rally in the weeks following Google’s announcement of a new quantum computing chip it’s calling “Willow” on December 9th.
But then came Nvidia’s Jensen Huang with a comment that sent quantum stocks crashing to the ground last week.
Huang recently estimated that real-life applications of quantum computers may still be 15 to 30 years away – dampening the optimism that’s been building in the sector since Google’s breakthrough.
On Monday, famed investor Jim Cramer also likened quantum stocks to the frenzied trading that surrounded GameStop in early 2021.
Quantum stocks and GameStop share a common thread
GME saga was characterized by a short squeeze orchestrated by retail investors that led to an astronomical surge in the company’s stock price and significant financial repercussions for institutional short-sellers.
Quantum stocks, on the other hand, were buoyed by the promise of groundbreaking technological advancements.
Quantum computing has the potential to revolutionize industries as these advanced machines can perform complex calculations at unprecedented speeds.
That’s why the likes of Microsoft, Google, and IBM are investing aggressively in quantum computing.
Still, Jim Cramer cautioned against getting swept up in the hype as practical and widespread applications of quantum computing are still decades away.
So, quantum computing and GameStop may have different underpinnings, but they do share a common thread: speculative enthusiasm that far outpaces reality, according to the Mad Money host.
This mismatch between expectations and reality has inflated quantum stocks based purely on speculation instead of financial performance.
Quantum stocks face several hurdles ahead
Jim Cramer remains dovish on quantum stocks also because the sector is rife with challenges.
He expects the relatively nascent technology to face significant hurdles in terms of scalability, improving error rates, and lowering overall costs.
Quantum computers, at least so far, are delicate and require extremely cold operating conditions, factors that add to their complexity and expense.
Such obstacles suggest commercial viability is perhaps not around the corner. It’s a long-term goal that requires sustained investment and research.
Jim Cramer advises investors to approach the recent crash in quantum stocks with caution.
Much like GameStop, shares of quantum computing stocks may not recover to their record levels anytime soon, he warned on Monday.
All in all, investing in promising technologies is always appealing and the potential of quantum computing may be undeniable, it’s crucial to balance enthusiasm with a grounded understanding of the risks and timelines involved.
While the analogy of GME may seem dramatic, it serves as a potent reminder of the perils of speculative investing.
Quantum computing may eventually prove to be revolutionary, but investors should remain vigilant and informed, avoiding the trap of overinflated expectations that have ensnared many in the past.
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