3 Quantum Computing ETFs to Know—And Why 2 Don't Hold D-Wave

The quantum computing market is projected for significant growth, from $4 billion in 2024 to $72 billion by 2035, presenting investment opportunities alongside challenges in identifying individual winners. D-Wave Quantum (QBTS) exemplifies this, exhibiting recent volatility and unprofitability, with its current price of $27.50 exceeding its $20.27 price target. Consequently, while some quantum-focused ETFs like Invesco Dorsey Wright Technology Momentum (PTF) and Spear Alpha (SPRX) exclude QBTS based on momentum or technological approach, the Defiance Quantum ETF (QTUM) includes it, offering diversified exposure to the sector with varied performance across these funds.

Analysis

The quantum computing industry is positioned for substantial growth, with forecasts projecting an expansion from $4 billion in 2024 to as much as $72 billion by 2035. However, selecting individual winning stocks presents a significant challenge, as exemplified by D-Wave Quantum (QBTS). Despite a recent 52% five-day rally, QBTS has shown prior price stagnation, lacks profitability, and currently trades at $27.50, well above its consensus price target of $20.27, indicating potential overvaluation. This skepticism is reflected in the strategies of several technology-focused ETFs. The Invesco Dorsey Wright Technology Momentum ETF (PTF) excludes QBTS, likely due to its momentum-based screening criteria, and has posted mixed results with a 25% 12-month return. Similarly, the actively managed Spear Alpha ETF (SPRX), which has shown exceptional performance with an 82% 12-month return, omits QBTS while holding rivals IONQ and RGTI, possibly due to concerns about D-Wave's underlying annealing technology. In contrast, the Defiance Quantum ETF (QTUM) provides a more diversified, lower-cost entry point into the sector, including QBTS within its 78 global holdings and achieving a strong 76% return over the last year. The exclusion of QBTS from two distinct funds suggests institutional caution regarding its valuation, momentum, and technological approach, even as the broader sector remains attractive.

Key Decisions for Investors

• Given that D-Wave Quantum (QBTS) is trading approximately 35% above its analyst price target and faces questions regarding its profitability and technology, investors holding the stock should consider the significant valuation risk and recent volatility.
• For investors seeking exposure to the quantum computing sector while mitigating single-company risk, a diversified vehicle like the Defiance Quantum ETF (QTUM) warrants consideration due to its broad holdings, global reach, and strong historical performance.
• The outperformance of the concentrated Spear Alpha ETF (SPRX), which notably excludes QBTS in favor of its rivals, suggests that a selective, actively managed strategy focused on specific technological approaches within quantum may yield higher returns, albeit with greater concentration risk.
• Monitor whether QBTS gains inclusion in momentum-focused ETFs like PTF in the future, as such a development could signal a sustained improvement in its relative strength and broader market acceptance beyond short-term rallies.