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September 13, 2022

Investors love quantum computing. Experts fear a bubble

Concern is growing that billions of dollars are being poured into a sector with no immediate path to profitability.

By Afiq Fitri

Quantum computers are not easy to understand. The important thing to know, at least among investors in the space, is that these devices are speedy – exceptionally speedy, in fact. By harnessing the quantum state of an object known as a qubit to make calculations at speeds far in excess of their classical cousins, scientists hope that quantum computers will facilitate stunning breakthroughs in research areas like drug discovery, financial modelling, cybersecurity and even weather prediction.

It’s a promise that has seduced VC firms and national governments alike into pouring billions of dollars into building the first generation of working quantum computers. However, while research in this area has been going on since the early 1980s, progress toward actually building a working prototype remains slow, and will likely remain so for the foreseeable future. There are also a growing number of industry observers who fear that investors do not understand this salient fact. “I’m as pro-quantum computing as one can be,” wrote the director of the Condensed Matter Theory Center, Sankar Das Sarma, in MIT Tech Review earlier this year. “But I’m disturbed by some of the quantum computing hype I see these days, particularly when it comes to claims about how it will be commercialised.”

So is Dr Nikita Gourianov, a physicist at Oxford University, who argues that an investment bubble is beginning to form in the quantum computing sector – one that could soon burst amid rising interest rates and a general shift among venture capitalists toward investing in projects with much shorter paths to profitability. 

“I think the quantum computing industry, along with tech as a whole to some extent, will undergo a serious correction over the next few years,” he told Tech Monitor. “In the last 14 years, we have seen an extraordinarily loose monetary policy, which has made venture capital firms and other investors awash with capital and eager to invest into all kinds of enterprises, from the highly prospective and disruptive, such as Uber, to the more uncertain and speculative, like quantum computing.”

These investments are made with the hope that these firms will return a profit – not immediately, granted, but over a timescale of several years. That’s hard to imagine, explained Gourianov in a recent opinion piece for the Financial Times, when the quantum computers that have been built are ‘so error-prone that any information one tries to process with them will almost instantly degenerate into noise.’ What’s more, while devices approaching the size of your common variety classical computer do exist, most quantum computers are still as tall as wardrobes – limiting their possible uses to only the most niche applications.   

As such, Gourianov argues, it may be several decades before any meaningful progress is made in commercialising quantum computing – an unpalatable prospect for investors once they realise the next big breakthrough won’t be that big, or that much of a breakthrough. “When this goes on for too long, with too many professionals working unproductively towards pipe dreams, this will eventually become too big of a burden on the real economy and things will have to reset,” he says. “I think, due to the particularly speculative nature of quantum computing, it will be among the first tech bubbles to burst and thus act as a sort of canary in the coal mine for the tech industry as a whole.”

Who is investing in quantum computing?

Most investment has come from the public sector, with billions of dollars poured into quantum-researching universities and start-ups by national governments keen to acquire an edge in this potentially transformative sector. China, for example, recently announced some $15bn in public funding to boost research into quantum computing, part of the country’s broader plans for technological dominance. It is trailed by the EU, which has committed $7bn, and the US, which recently allocated $2bn from the recently passed CHIPS and Science Act. 

While the private sector’s pockets are not as deep, its interest in quantum has grown markedly in recent years. Last year, total funding for quantum computing start-ups ran to approximately $1.4bn, more than double the amount raised in 2020. One of the biggest winners in the recent wave of investments is PsiQuantum, a Palo Alto-based company which claims to be able to “deliver the quantum capabilities required to drive advances in climate, healthcare, finance, energy, agriculture, transportation, communications, and beyond”. The British company ArQit, which supplies quantum encryption services, also received $400m in funding last year. Former employees have, however, raised concerns that the company inflated its prospects to investors. 

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Whether it’s actually possible to sustain these levels of funding for quantum computing is another matter. According to analysts at McKinsey, while the industry has seen strong growth in the past two years, the rate of start-up founding has slowed down due to various factors, ranging from the lack of talent to the market maturity in quantum hardware solutions. 

Not everyone is sceptical about quantum computing’s prospects in the near term. While the sector needs to be honest about how challenging the path to commercialisation will be, says Gourianov’s fellow Oxford professor and quantum expert Simon Benjamin, there is a sense of inevitability among researchers in the field that the destination will be reached. “The basic fact is this: the quantum computing industry is steadily ticking off milestones and achievements and making great strides towards where we need to be,” says Benjamin.  

Charles Seely agrees. A partner at Hoxton Ventures, which has invested extensively in quantum computing start-ups, Seely is unsurprised that such a potentially transformative sector has attracted sceptics. But while certain parts of the field may have received too much money, he argues, that isn’t necessarily a bad thing - the difficulties involved in making quantum computing a reality, after all, necessitate massive investment. Investors, in short, should keep the faith.  

“If you look at the density of scholarly research, it’s real,” says Seely. “It’s just anyone’s debate about when it’s actually going to come to market.”

Read more: Towards the quantum internet

Homepage image by Boykov/Shutterstock

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