THE NEXT BIG THING IS…

Ed D'Agostino
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October 22, 2024
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Comments

Investors are always on the lookout for the next big thing. The next technology that will bring about an economic evolution. The next trillion-dollar industry (or company). The next shiny new investment that will propel their portfolios upward.

Investing in the next big thing isn’t easy. Look at the tech bubble of the late 1990s, followed by the crash of 2000. Venture capitalist Brad Gerstner, in a great interview with Meb Faber, noted that even if you knew the internet would be the next big thing, and even if you knew that search would be at the core of the internet, you probably wouldn’t have made money investing in early internet stocks. Most went to zero.

In the ‘90s, we had multiple search engines. I was fond of Ask Jeeves. Some of you won’t know what that is since it no longer exists. Jeeves, along with AltaVista, Infoseek, Lycos, Magellan, and several others are either gone or irrelevant today.

Gerstner also pointed out that if you had the foresight (or luck) to invest in Google at its IPO and then held on, you would have hit the motherload. I say “luck” because that’s what it would have taken. Few investors can say they saw Google as the single best bet on the internet, and even fewer held on as the stock’s value oscillated on its way to becoming a $2 trillion market cap business.

Despite the challenges of anticipating the next big thing, let alone successfully investing in it, I can’t help myself. I’m an investor, but I have a speculative side.

I think quantum computing is the next big thing.

As we unlock the secrets of quantum, change will accelerate. The speed at which a quantum computer will operate, and the level of complexity a quantum system will be able to manipulate, are mind-boggling.

What’s the difference between quantum computing and today’s computers? Mainly the way it computes. Classical computers use bits, while quantum computers use qubits. IBM sums it up this way:

A classical bit can only exist in either a 0 position or a 1 position. Qubits, however, can also occupy a third state known as a superposition. A superposition represents 0, 1, and all the positions in between taken at once, for a total of three separate positions.

I started my quantum research by watching videos (no surprise, I suppose). This one with CUNY professor Dr. Michio Kaku is a great primer. If you like Kaku’s style and want to go deeper, check out his book, Quantum Supremacy. I had to take the book one chapter at a time. This is heady stuff, even at the layman’s level.

If you happen to know Professor Kaku, I’d appreciate an introduction, as I’d like to interview him for Global Macro Update.

The risks of investing in a fledgling industry are significant. Some of the risks I see with quantum include:

Qubits are susceptible to errors, making scaling difficult.
There are multiple approaches to working with qubits. Some involve operating at near absolute zero temperatures, lasers, and isolating photons or atoms.
The cost to scale a quantum computer is proving to be enormously expensive, potentially eliminating smaller players in the space.
Google is one of the big companies making progress in quantum computing. Will the Federal Trade Commission break it up? If so, will the entity that ends up with Google’s quantum technology have the capital to continue investing in the technology?

Quantum computing as an investment is an example of Gartner’s hype cycle at work, and we are in its early stages.

All of this to say, investing in quantum today is very much a speculation. I have made investments in two companies in this sector. The first is a relatively large company with a quantum division. I like this approach, as it gives me a low-cost option on quantum developments. If it fails at quantum, that’s okay. I still like the company.

The second is a speculation on quantum computing. I’ll let you know if it works out. If you are a member of my Macro Advantage service, you’ll know which business I’m discussing.

I’ll share a new interview with you on Friday.

Until then, good luck and stay safe.

Ed D’Agostino
Publisher & COO