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Amid all the excitement around artificial intelligence (AI), other equally fascinating and potentially disruptive technological revolutions seem to have taken a backseat. One such concept is quantum computing. In simple terms, regular computing involves the use of bits like tiny switches that are either on (1) or off (0). Quantum computers use qubits, which are like special switches that can be on, off, or both at the same time. This lets quantum computers tackle certain problems much faster than regular computers.
Notably, with applications in diverse fields such as healthcare, banking and automobile among others, the market for quantum computing is expected to clock a CAGR of 32.1% to reach $6.53 billion by 2030.
With a growing market and widespread applications, here are two well-established, dividend-paying tech titans who have been quite active in the quantum computing space recently. For investors looking to benefit from this up-and-coming megatrend, these two stocks are worth considering.
IBM
International Business Machines Corporation (IBM), more popularly known as IBM, has been an IT giant for over a century. Currently, it is a leading provider of global hybrid cloud and AI solutions along with consulting expertise. It also offers a wide range of software products and delivers traditional IT infrastructure solutions like storage and servers.
Currently commanding a market cap of $170.5 billion, IBM stock is up 13% on a YTD basis. The stock also offers a dividend yield of 3.5%, which is above the sector median of 1.025%. What's more, IBM is on the verge of being a “Dividend Aristocrat,” as it has raised dividends consistently over the past 24 years.
IBM, which is set to report its 2024 Q1 results on April 17, reported decent numbers in the latest quarter, with both revenue and earnings surpassing estimates. IBM reported Q4 revenues of $17.4 billion, up 4% from the previous year amid growth in all of its key revenue segments. Further, the company's EPS rose by 8% on a YoY basis to $3.87, surpassing the consensus estimate of $3.79. Notably, IBM's EPS have topped expectations in each of the past five quarters.
More recently, the company's first quantum computer on a college campus just came to fruition at Troy, New York's Rensselaer Polytechnic Institute. CEO Arvind Krishna sounded upbeat about the development, as he said that “installing quantum computers on college campuses could lead to an explosion of innovation and economic opportunity echoing the birth of the early internet around university supercomputer hubs.” Apart from this, IBM will also complete a new EU quantum data center in Ehningen, Germany, bringing local quantum resources to Europe in 2024.
And IBM isn't ignoring the AI market, as it leverages the tech to boost its consulting business - which, along with software, makes up 75% of the company's revenue. IBM has partnered with Amazon (AMZN) Web Services (AWS), Microsoft Azure, and other platform service providers, providing them with a holistic offering that includes both infrastructure and software/solutions. Additionally, the company's AI platform, Watson, is already being used by healthcare providers, in customer service and financial services.
Overall, analysts have a “Hold” rating for IBM stock, with a mean target price of $183.08. However, due to its sharp rally so far this year, this target has already been surpassed - but the Street-high target price of $220 denotes an upside potential of nearly 19% from current levels. Out of 14 analysts covering the stock, 3 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 8 have a “Hold” rating, and 2 have a “Strong Sell” rating.
Microsoft
We continue our list with another tech titan, the software giant Microsoft (MSFT). Microsoft, best-known for its Windows operating system for computers, has expanded its range of offerings over the years with productivity applications, AI, and video games, and the company is also a major player in the enterprise cloud computing market with its Azure platform.
With a massive market cap of $3.15 trillion, Microsoft is one of the world's most valuable companies. It remains at the forefront of the tech revolution through its major investments in the exciting field of quantum computing, as well.
Shares of the Redmond-based company are up 12.6% on a YTD basis. Microsoft stock also offers a dividend yield of 0.67%, and with a payout ratio of just under 26%, there's plenty of scope for growth in the years ahead. In fact, with 19 years of steady dividend growth under its belt, MSFT also looks to be on pace for future Dividend Aristocrat status.
Slated to report its fiscal Q3 2024 results on April 23, Microsoft's results for the latest quarter were impressive, as well, with both revenue and earnings surpassing Street expectations. Revenues for the quarter came in at $62 billion, which denoted a yearly growth of 17.6%. EPS grew by 33.2% to $2.93, comfortably outpacing the consensus estimate of $2.77. Looking back, Microsoft's EPS have surpassed estimates in each of the past five quarters.
When it comes to quantum computing, Microsoft, along with Quantinuum, recently claimed a breakthrough in quantum computing. Quantinuum is a quantum computing company known for their H-Series trapped-ion quantum computers, which currently hold the record for the highest quantum volume at 524,288.
To make quantum computing commercially viable, Microsoft and Quantinuum announced that Microsoft applied an error-correction algorithm that it wrote to Quantinuum's physical qubits, which has supposedly reduced data errors that were produced if the quantum computer is even slightly disturbed.
Further, Microsoft's credentials in the AI space are already widely known. Whether through its investment in ChatGPT maker OpenAI, or the integration of AI in its cloud business or across its office productivity suite, Microsoft is leading from the front in the AI domain globally. Additionally, the company recently hired one of the AI industry's pioneers and DeepMind founder, Mustafa Suleyman, as its head of AI. Together with AI scientist Karén Simonyan (with whom Suleyman worked at his startup Inflection), they'll form a group called Microsoft AI, focused on advancing Copilot and Microsoft's other consumer AI products and research.
Analysts have deemed Microsoft stock a “Strong Buy,” with a mean target price of $454.06 - which indicates an upside potential of about 7% from current levels. Out of 37 analysts covering the stock, 33 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 1 has a “Hold” rating.
