How I'm Building My Quantum Computing Portfolio

Nvidia CEO Jensen Huang's sobering assessment of quantum computing's timeline sent the space into a tailspin last week. During a question-and-answer session with analysts, Huang suggested that useful quantum computers were likely 15 to 30 years away.

The market's reaction was swift and severe. Rigetti Computing (NASDAQ: RGTI) plunged 45%, IonQ (NYSE: IONQ) tumbled 39%, and D-Wave Quantum (NYSE: QBTS) crashed 36% in a single day last week. That kind of extreme volatility is exactly why I've created a separate brokerage account for my quantum computing investments.

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I'm starting with a modest $1,000 investment and adding $20 monthly, treating this as a 20-year to 30-year investment in computing's next revolution. By isolating these positions from my core portfolio, I can stay committed through market swings that might otherwise shake my conviction. Like early personal-computing investors who saw past the technology's primitive beginnings, I believe quantum computing's current limitations mask its revolutionary potential.

Here's how I'm planning to allocate my initial $1,000 investment, along with my monthly $20 contributions, across this quantum computing portfolio.

Tech giants lead the quantum race

I'm planning to allocate 20% to Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). The company recently unveiled the next-generation Willow quantum processor, which can reportedly solve complex math problems in five minutes that would take today's fastest supercomputers 10 septillion years. This development builds nicely on their earlier quantum supremacy claims with the Sycamore chip.

Alphabet's deep pockets and talent pool make it a cornerstone of my planned portfolio. The company's ability to integrate quantum advances with its existing cloud and artificial intelligence (AI) infrastructure creates multiple paths to commercialization. As a bonus, Alphabet is a fundamentally sound mega-cap, a feature that can provide stability to the portfolio.

Enterprise quantum development

I'm allocating 15% to IBM (NYSE: IBM), which has built the world's largest quantum computing network through its "IBM Quantum Platform." The tech-giant's focus on practical applications and broad accessibility has created strong enterprise relationships throughout the quantum computing ecosystem. IBM's emphasis on real-world implementation could accelerate quantum computing's path to widespread commercialization.

Unlike some competitors that are chasing headlines, IBM is methodically building a functional quantum ecosystem. The company's extensive patent portfolio and established developer community provide crucial competitive advantages. Moreover, IBM's enterprise-level relationships and full-stack approach from hardware to software make it a natural leader in quantum computing's commercial development.

Pure-play quantum exposure

I'm also allocating 15% to IonQ (NYSE: IONQ), which leads in trapped-ion quantum technology. IonQ's approach has demonstrated superior coherence times, compared to competing methods. Most importantly, the company's established partnerships with major cloud providers and recent technical breakthroughs make it a key player in quantum computing's development.

I'm also planning 10% each for Rigetti and D-Wave Quantum. Rigetti's full-stack development approach and superconducting quantum processors provide unique advantages in scaling quantum systems. D-Wave's quantum annealing technology could prove valuable for optimization problems even before universal quantum computers arrive, giving them a potential head start in commercial applications.

Infrastructure foundation

I'm allocating 15% to Taiwan Semiconductor (NYSE: TSM). The company's advanced chip fabrication makes them essential to quantum development. The semiconductor giant's unparalleled manufacturing expertise and massive research and development (R&D) investments position it as a critical infrastructure player in the quantum computing ecosystem.

Furthermore, TSM's dominance in semiconductor manufacturing provides a pick-and-shovel approach to quantum investing. After all, the company will undoubtedly benefit from quantum advances, while generating steady revenue from traditional computing markets, offering some downside protection for this highly speculative portfolio.

Strategic hedge

I'm dedicating 10% to Palo Alto Networks (NASDAQ: PANW) as a strategic hedge. Palo Alto's development of quantum-resistant security solutions provides portfolio protection, regardless of how quickly quantum computing develops.

This position serves dual purposes. Current encryption methods will need replacement once quantum computers arrive, driving demand for Palo Alto's solutions. Meanwhile, cybersecurity spending should continue to rise over the current decade -- even if quantum development takes longer than expected.

Managing the portfolio

I'm keeping 5% in cash to take advantage of extreme market reactions like we saw last week. The quantum computing landscape will evolve dramatically over the coming decades. Some current players will fail, others will get acquired, and important new companies will emerge. A small cash reserve gives me the flexibility to adjust as the industry develops.

This flexibility is crucial, given how early we are in quantum computing's development. Rather than trying to predict every winner now, I'm maintaining some dry powder so I can respond to breakthrough developments and add exposure to promising new entrants as they emerge.

Why not an ETF?

Unlike the Defiance Quantum ETF (NASDAQ: QTUM), which spreads investments thinly across dozens of companies, I'm choosing to concentrate on the key players driving quantum development. While this increases individual stock risk, it also increases potential returns if quantum computing delivers on its promise. The Defiance Quantum ETF's broader approach might provide safer exposure to this theme, but it could also dilute the revolutionary potential I'm trying to capture.

The ETF's structure also works against long-term compound growth. Its regular rebalancing and inclusion of tangentially related companies reduces exposure to potential breakthrough winners in the space. A concentrated portfolio of carefully selected companies offers better odds for life-changing returns.

Take-home message

The quantum computing revolution may take decades to unfold, but the potential returns justify patience. By maintaining a separate account with regular small contributions, I can stay committed to this opportunity without worrying about short-term volatility. For me, this balanced approach offers the best chance to capture quantum computing's revolutionary potential.

Each investment in this portfolio serves a specific purpose in capturing quantum computing's long-term opportunity. While there will certainly be setbacks and failures along the way, the combination of established tech leaders, pure-play quantum companies, and strategic hedges gives me the confidence to keep investing through the inevitable volatility ahead.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. George Budwell has positions in IonQ, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, International Business Machines, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.