These two chipmakers could benefit from quantum computing, UBS says

Nvidia CEO Jensen Huang's recent remarks have heightened interest in quantum computing, with IBM targeting a practical quantum computer by 2029 despite current challenges with qubit error correction. UBS analysts indicate that while fully functional quantum computers are still distant, the immediate investment opportunity lies with semiconductor equipment makers and contract chip manufacturers like Applied Materials, Lam Research, and GlobalFoundries. This is due to the significant overlap between quantum hardware development and existing advanced semiconductor fabrication processes, positioning these firms as key early beneficiaries, though the full realization of benefits remains a long-term prospect.

Analysis

Recent comments by Nvidia's CEO have catalyzed a surge in investor interest in quantum computing, a sentiment confirmed by UBS analysts. While major technology firms including IBM, Microsoft, and Alphabet are actively exploring the space, International Business Machines (IBM) has set an aggressive timeline, targeting a practical quantum computer by 2029. However, the industry faces a significant technical hurdle in qubit error correction, which currently prevents quantum systems from outperforming classical computers on a net basis. The core investment insight, according to UBS, lies not with the quantum computer developers themselves at this stage, but with the semiconductor equipment sector. The fabrication of quantum hardware, such as Intel's 12-qubit chip utilizing advanced lithography, heavily leverages existing semiconductor manufacturing processes. Consequently, contract chip manufacturers like GlobalFoundries and especially equipment makers Applied Materials (AMAT) and Lam Research (LRCX) are positioned as the "key beneficiaries" of this emerging field, even though analysts caution that any material financial impact remains a long-term prospect.

Key Decisions for Investors

• Investors seeking exposure to the quantum computing theme should consider focusing on the semiconductor equipment supply chain, particularly Applied Materials (AMAT) and Lam Research (LRCX), which UBS identifies as primary beneficiaries at this early stage.
• Given that significant technical challenges like qubit error correction persist and financial benefits are described as 'a long way out,' any positions should be viewed as long-term, speculative investments contingent on future technological breakthroughs.
• While monitoring the progress of firms like IBM is important for gauging the industry's trajectory, their vast scale means quantum developments are unlikely to materially impact their financials in the near term, unlike the more direct, albeit future, market expansion opportunity for their equipment suppliers.