What is quantum computing?

You might be hearing about quantum computing as the next high tech investment opportunity. It’s a bit like when AI or blockchain hit the headlines. Some predict quantum will fundamentally change many areas, including finance.

Quantum computing brings together knowledge from two fields, quantum mechanics, a branch of physics, and computer science. Quantum mechanics explains how matter and energy behave at the level of atoms and molecules, while computer science focuses on the design of computer systems hardware, software, and methods of information processing.

The smallest units of information that today’s computers understand are known as bits. Quantum computers also use similar units of information known as quantum bits called “qubits”. However, qubits function differently than traditional bits – which operate in either a 0 or 1, on or off state or ‘position’ at a time.

In other words, traditional bits are like a light switch. Qubits, on the other hand, can exist in a “superposition of states”, which means they are not limited to a single state at a time. A rough way to picture this is to think of a dimmer switch with many settings or modes of lighting. Like most analogies, this comparison isn’t perfect, but it helps illustrate how quantum computers can work with more possibilities at once than traditional computers.

To further explain, let’s break this down a bit more. Quantum computing is based on three core principles that, when combined, enable quantum computers to process information differently from classical computers or supercomputers:

• Superposition: Superposition allows qubits in a quantum computer to exist in a combination of possible states at the same time. Unlike traditional bits which must be either 0 or 1 at any moment, qubits can exist in a superposition of possible values until measured. This is part of what makes quantum computing so powerful, because it allows many possibilities to be considered within a single calculation.  

• Entanglement: Entanglement occurs when qubits become linked, so they no longer act independently, like traditional bits. What happens to one is linked to what happens to another, allowing them to behave in a coordinated way during a calculation. Staying with our light switch example, it’s a little bit like having a room full of lights with dimmer switches whose settings are linked, so changing one affects the others, even across the room.

• Interference: Interference is a fundamental mechanism of quantum computing that guides the outcomes of probabilistic calculations. Quantum systems also rely on wave-like behaviour, and when these patterns overlap during a calculation, probabilities are either reinforced (constructive overlap) or weakened (destructive overlap). This process acts like a filter and guides a quantum computer toward the correct or high-probability solutions. Traditional computers can only process possibilities one step at a time without a filtering process that narrows down results at the same time.  Staying with the lighting analogy, imagine several lights shining into a room from different angles. In some places, the light overlaps and becomes brighter. In others, the overlap reduces the light or creates shadows. In a quantum computer, qubits behave like waves of light. As calculations progress, the system is designed so that paths leading to better answers reinforce one another (like brighter areas), while paths leading to less useful answers cancel each other out. This filtering process helps guide the computer toward the most likely correct results.

Together these three principles allow quantum computers to approach problems differently than traditional computers. When a quantum computer can reliably perform a task that would be impractical for a classical computer, this is known as quantum advantage.

Today, the use of quantum computing is limited to research and experimental problems. In the future quantum technology has the potential to surpass classical computing capabilities. It could introduce advances that may transform many industries, creating both opportunities and risks for investors.

What are the benefits of quantum technology for investors?

Quantum computing has the ability to handle complex problems which are either too difficult or time-consuming for classical computers.

These benefits could influence how many industries operate and compete and may include:

• Drug discovery and material science improvements: Quantum computing could improve how molecules and materials are simulated, which may shorten research cycles in pharmaceuticals, energy, and chemicals.
• Logistics & supply chain optimization: Quantum capability could help improve decisions by simulating disruptive events, performing risk and impact analysis, and solving complex optimization problems that may lead to improved shipping operations, supply chain management and routing leading to lower costs, and improved delivery times.
• New encryptionEncryption A way to make it safer to send information online by putting data into a…+ read full definition algorithms: The expected impact of quantum computing has accelerated development of new quantum resistant encryption standards, prompting upgrades to digital security infrastructure and systems within the next decade potentially creating new markets and investor opportunities.
• Advanced Chips and Hardware: Quantum systems require special processors, materials and infrastructure potentially creating new demand for the manufacturing of goods and creation of new technology services.
• Finance:  Quantum computing may transform the finance industry helping to optimize portfolios, price complex derivatives, and run risk simulations more efficiently. While still highly experimental, quantum machine learning may also drastically improve fraud detection by analysing hundreds of thousands of transactions with better accuracy and efficiency.

Although it is in early stages of use, quantum computing’s potential to transform industries that depend on solving highly complex problems is real. For investors, it represents a long-termTerm The period of time that a contract covers. Also, the period of time that an…+ read full definition gradual shift as science and technology matureMature When an investment such as a bond reaches its maturity date. On that date, you…+ read full definition.

What are the risks of quantum technology for investors?

While the underlying science of quantum computing is established, timelines, scalability, and economic impact of practical use remain uncertain. Investors should be aware of the risks when considering any investment decision.

Current risks and unresolved uncertainties include:

• Technology is still experimental: Large-scale and reliable quantum computers don’t exist yet, and many technical challenges remain. One of the most significant is decoherence, which is the process of a quantum system losing its quantum properties when qubits begin to behave more like traditional bits limiting the types of calculations that can be performed.
• Headlines may overstate progress: Despite the ongoing effort of scientists and engineers who are working to bridge the gap between science and real-world use, widespread adoption of any early-stage technological innovation usually happens gradually over long periods of time.
• High development costs: Quantum systems are expensive to build and require specialized expertise. Quantum technology is still in its early stages and faces technical, commercialization, scaling, and long-term profitability risks.
• Limited ways to directly investInvest To use money for the purpose of making more money by making an investment. Often…+ read full definition in quantum: Most quantum research is part of large tech companies, where it’s only a small piece of the business. Publicly traded quantum focused startups, and quantum funds may offer retail investorsRetail investors In Canada, people who invest their own money in the stock market are called retail…+ read full definition a way to invest, however, significant levels of risk and volatilityVolatility The rate at which the price of a security increases or decreases for a given…+ read full definition may exist.
• Cybersecurity transition risk: Quantum computers could eventually compromise widely used encryption technologies that secure global financial transactions and communications. Even if large-scale quantum computers take many years to emerge, the transition to new quantum-resistant encryption standards could drive significant global costs and operational challenges for all market participants.

Given the technical and commercial risks and uncertainties (like those with AI), real-world applications of quantum computing with widespread market adoption are most likely many years away. Investors should consider these and other risks when making investment decisions.

How can you evaluate a quantum investment opportunity?

People can get very excited about the promises of new technology and related investment opportunities. But before you buy stockStock An investment that gives you part ownership or shares in a company. Often provides voting…+ read full definition in any company, it’s important to evaluate if it’s the right investment for you. There are ways to review investment opportunities such as looking at a company’s stock price. And there are other ways to estimate the value of a business. Learn more about how to evaluate companies before investing.

And as with any new technology, such as AI, you may see a lot of headlines about promising new companies. But there is also a risk of investment scams. Just like we have seen with other emerging technologies, fraudulent operators may jump on a fast-moving trend to try to convince you to part with your money. They may say they have an incredible, time-sensitive quantum technology investment to offer you. Be sure to slow down, get outside advice and take steps to verify. Find out more about spotting and avoiding common investment scams. Remember: always check the registration of any person or business trying to sell you an investment.