Looking to beat the market? Quantum computing could lift Alphabet shares even higher…
Alphabet (NASDAQ:GOOGL) shares are up 51% over the past 12 months. But thatâs nothing compared to many of the stocks in my quantum computing watchlist. Several of them are up more than 1,000%.
So, why am I talking about Alphabet and quantum computing?
Well, if youâve been following this rather exciting sector youâll know that Alphabet â the parent company of Google â is advancing its own quantum technologies, and itâs doing rather well.
Pure-play quantum computing stocks have been in vogue over the past 12 months, but theyâre small companies, with relatively short pockets, and often no cash flow.
Alphabet on the other hand is a technology giant. Among other pros, itâs has a huge net cash position of over $50bn. I think its pockets are so deep that it could buy all of the pure-plays and have money left over.
Quantum advantage
Googleâs recent demonstration of verifiable quantum advantage (doing something faster than a supercomputer) with its Willow chip and the Quantum Echoes algorithm is a milestone for quantum computing.
The experiment showed that complex simulations â such as molecular modelling â could be performed thousands of times faster than on the worldâs fastest classical supercomputers.
From an investment perspective, this is important because it signals that quantum computing is moving from theory to practical application. In fact, Alphabet believes we will see real-world applications of quantum computing in the next five years.
Companies leading in this space are building a technological and competitive advantage that could one day open up opportunities in pharmaceuticals, materials science, and optimisation problems.
Early adoption could translate into faster innovation cycles and new revenue streams. For investors, breakthroughs like this highlight the potential of quantum technologies to reshape industries and generate long-term value.
For now, I donât believe Googleâs quantum computing achievements are really reflected in the share price. Which is strange because some of the pure-play quantum stocks are trading at ridiculous valuations.
However, if Alphabet continues to deliver these updates as we move towards a real-world application, I have no doubt that it will be reflected in the share price.
The broader picture
Personally, I believe Alphabet is among the best value mega-cap stocks. Itâs often wrongly compared with communications peers when itâs really a technology giant.
Looking at the figure, the stock is currently trading around 26 times forward earnings. Thatâs broadly in line with the information technology sector average.
However, itâs expected to grow earnings by around 16% annually over the medium term, leading to a price-to-earnings-to-growth (PEG) ratio around 1.5. Thatâs a 15% discount to the information technology sector average.
Concerns? Well, thereâs always the impact of AI on Googleâs search dominance. Some analysts were concerned that ChatGPTâs Altas programme may undermine Googleâs dominance â Iâm not sure myself.
Nonetheless, itâs definitely worth considering. Itâs well-valued and has many strings to its bow.
The post Looking to beat the market? Quantum computing could lift Alphabet shares even higher⦠appeared first on The Motley Fool UK.
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James Fox has positions in Alphabet. The Motley Fool UK has recommended Alphabet. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
