Knowledge Centre
Quantum computing
QUANTUM COMPUTING We at TEAM are constantly seeking out secular trends and growth. Our portfolios are invested in shares of companies with high exposure to these trends. Identifying the difference between secular and cyclical growth is key to our strategy. Secular growth is more consistent, more forecastable and is typically less correlated to broader stock market returns. It can also reduce aggregate volatility. It is less exposed to economic externalities, the business cycle and geo political events. So, whilst it is growth, it can also be considered defensive growth.
At TEAM we are not early stage, frontier emerging technology investors. However, technology is one of our Six Global Mega Trends (see TEAM report). Quantum computing is undoubtable one of the next major technology advances and some companies will benefit from real gains from Quantum in the next 5 years. Some will be a decade or more behind. But the potential is vast, and as long term “buy and hold” investors we have to be aware of this emerging secular trend and find conservative, low risk companies to access exposure.
So, what is Quantum computing? Computers of today and for that matter yesterday operate on “bits” of data, these bits being binary, i.e ones and zeros. The academic origins of computing stretch all the way back to Gottfried Leibniz in 1689 with his light (Candle) ‘on or off’ experiment. The principles of how data is moved around through glass fiber (fiber optics) have changed little Quantum computing uses the laws of quantum mechanics and because we do not see quantum processes in everyday life, we are not familiar and find it difficult to understand.
Instead of binary ones and zeros, quantum adds “superpositioning” to those ones and zeros. So instead of “bits” it uses quantum bits or “qubits”. Take a football or a sphere. In the binary world, that football only has two poles. North or south, east or west. But with qubits it has anywhere or point on that football. In binary it is one OR zero, in quantum it is one TO zero. Einstein said quantum physics were “spooky”. He’s correct.
Here a real-life example of the difference between the two;
You are having a corporate event and you need to arrange taxis for a group of the attendees. Let’s say that you need taxis for only 3 people for now — Alice, Becky, and Chris. And suppose that you have booked 2 taxis and you want to work out who gets into which taxi. Also, suppose that you know who’s friends or colleagues with who, and who’s enemies or competitors with who. Here, let’s say that:
- Alice and Becky are friends
- Alice and Chris are competitors and
- Becky and Chris are enemies/competitors
Now your goal is to divide this group of 3 people into the two taxis to achieve the following two objectives:
- Maximize the number of friend pairs that share the same car
- Minimize the number of enemy/competitor pairs that share the same car
To solve this problem with a regular, non-quantum computer, you need first to work out how to store the relevant information with bits.You would label the two taxis Taxi #1 and Taxi #0.
Then, you can represent who gets into which car with 3 bits. I.e., 0, 0, and 1 to represent:
- Alice gets into Taxi #0
- Becky gets into Taxi #0
- Chris gets into Taxi #1
Since there are two choices for each person, there are 2*2*2 = 8 ways to divide this group of people into two cars.
A | B | C
0 | 0 | 0
0 | 0 | 1
0 | 1 | 0
0 | 1 | 1
1 | 0 | 0
1 | 0 | 1
1 | 1 | 0
1 | 1 | 1
Now, using a regular computer, how would we come up with the best solution or arrangement?
We have to score, or rank, each combination to ascertain optimal or preferred combination of fellow passengers.:
Alice, Becky, and Chris all get into Taxi #1. With three bits, this can be expressed as 111.
In this case, there is only one friend/colleague pair sharing the same car — Alice and Becky. But if we put Alice and Chris, and Becky and Chris in the cars we now have two enemies or competitors in the same taxi. This would be 1-2 = -1.
Let’s go back to our table;
A | B | C | Score
0 | 0 | 0 | -1
0 | 0 | 1 | 1 - one of the best solutions
0 | 1 | 0 | -1
0 | 1 | 1 | -1
1 | 0 | 0 | -1
1 | 0 | 1 | -1
1 | 1 | 0 | 1 - the other best solution
1 | 1 | 1 | -1
Our two correct arrangements are 001 and 110. But what if we were arranging taxis for four guests. That would be 2*2*2*2 = 16. Say one hundred guests, 2¹⁰⁰ ~= 10³⁰ = one million million million million million arrangements. Simply impossible to solve with a regular computer.
How would a quantum computer deal with this problem?
In binary, we used 3 bits to give 8 outcomes. With quantum we can use 3 qubits for the 8 outcomes at the same time. This is where it gets difficult and there are many versions of how and why.
Take the first qubit of the 3. Give it both 0 and 1 thereby creating two parallel worlds. Like splitting cards in Blackjack. One world is 0 and the other 1. Take the second qubit and give that 0 and 1, now creating 4 worlds. So, world one with two qubits is 00 and 01, world three is 10 and four is 11.
3 qubits are 8 parallel worlds, 000, 001, 010, 011, 100, 101, 110, and 111 at the same time. Instead of going through each potential arrangement, line by line, taking time and computing power, a quantum computer would come up with the same solution in a millisecond. Basically, it’s one operation. With 4, 5, 6, etc. guests it’s still one operation.
With today’s computers, it is vital to keep the bits separate. One bit must not interfere with another. Today’s chips can only handle one set of data inputs and one calculation at a time. This uses up power and consequently constrains the fastness and ability to problem solve. Modern computers are reaching the limits of their processing powers.
This form of computing was once thought impossible. The realms of Star Trek or Ad Astra. However, in 2010, the private Canadian company, D-Wave introduced the world’s first commercially available quantum computer. That was the dawn of a new age. Ten years on true commerciality is approaching fast.
Quantum computers will not replace today’s laptops, PC’s or mainframes, but it will help solve extremely complex statistical problems difficult or impossible to current computers. The most relevant and applicable sectors are the likes of pharmaceuticals, cybersecurity (Shor’s algorithm), finance, artificial intelligence (AI) or machine learning (ML) and telecommunications.
Initially and perhaps long term, companies with complex issues will receive quantum services via the cloud relying on their existing providers such as Amazon WS and Microsoft Azure. Both have already announced quantum offerings. McKinsey Global Research suggests between 2022 and 2026 many businesses will start to adopt hybrid approaches. By 2025, significant value will be being created through quantum. Companies have begun harnessing this capability and leaders are the likes of Barclays, BASF, BMW, Dow and Exxon.
At TEAM we always prefer to invest in the “shop that sells the picks and shovels”. In quantum computing these are;
Alphabet (Google): This is one of best quantum computing stocks. Already it has described itself as being “close to quantum supremacy”. Their Bristlecone quantum chip has 72 qubits, an advance in one year from the 50 IBM has on their chip. Moors Law again.
AT&T: best known as a telco it’s AT&T Labs research division is focused on two leading edges. The first 5G (see our TEAM 5G report) and the second, quantum. By using quantum, large, mega sized big data can follow the user without eating up the network capacity.
IBM: IBM Q is building a “commercially available universal quantum computers for business and science.” Within 5 years they expect both programmers and developers to be using the technology directly.
Intel: As the current silicon transistors reach the limitations Intel is adapting and leading the way. They have produced the world’s smallest qubit chips thus far. The problem is they currently need a constant absolute zero temperature environment.
Lockheed Martin: Lockheed are the only way to invest in the Canadian pioneers, D-Wave. The world’s largest defense contractor became the first customer of D-Wave. Lockheed highest costs are in what it calls verification and validation. Today’s technology forces the company to tests scenarios on an individual basis. Through quantum computing, the company could then test multiple solutions all at once, at a much lower cost.
Microsoft: Microsoft has become one of the largest companies in the cloud (Microsoft Azure). With its experience in software and focus on quantum Microsoft could be one of the best stocks in this space. It’s latest and ground-breaking Q# is a new high-level quantum-focused programming language, offering development tools to provide the fastest path to quantum programming on Windows, macOS, or Linux.
Nokia: The former mobile phone king is now a leader in the 5G equipment space. But it also owns Nokia Bell Labs and this research division has recently discovered several materials that can act as superconductors. Traditional silicon chips cannot easily support quantum. Nokia is involved in a project at Oxford University alongside Lockheed Martin to explore the potential for quantum technology to enhance optimization and machine learning.
Alibaba: In July 2015, Alibaba’s Aliyun cloud unit and the Chinese Academy of Sciences established a research facility called the Alibaba Quantum Computing Laboratory. The lab looks into quantum computing applications across various fields, including artificial intelligence and security for e-commerce and data centers. In February 2018, Alibaba Cloud launched a cloud quantum computing service that had 11 qubits.
Booz Allen: In September 2018, the global consulting company received a contract from the US Air Force Research Laboratory. As part of this project, together with quantum computing company D-Wave Systems. Booz Allen is researching ways to use quantum computing to address the problem of optimizing the grouping of satellites in order to maximize their coverage area.