Is Quantum Entering Its Infrastructure Phase?

For years, I’ve tracked a phenomenon in the tech markets that I consider a “pre-hype purgatory.”

It’s the period where a technology is clearly revolutionary, but the timelines are so fuzzy and the costs are so high that most investors simply tune out.

Artificial intelligence was stuck in this purgatory for nearly a decade. Then ChatGPT launched in November 2022, and AI went from being a compelling research project to a commercial arms race practically overnight.

I believe we are watching the exact same thing happening right now with quantum computing. That’s why I recommended quantum computing company IONQ in March when it was trading at only $22 a share.

Quantum has been the ultimate science project for a long time now. Scientists are still figuring out how the quantum realm works, so the idea of practical quantum computing has always seemed to be decades away.

That’s why companies and governments working in this world of absolute zero temperatures and theoretical math haven’t needed to worry much about quarterly earnings reports or budgetary constraints.

But a recent $110 million transaction tells me that the era of consequence-free research is ending.

And we’re moving toward the era of industrial execution.

The Industrialization of the Impossible

Quantum Computing Inc (Nasdaq: QUBT) recently announced a deal that should be front-page news for anyone tracking this next wave of disruption.

The company agreed to acquire a photonics business formerly owned by Luminar Technologies (Nasdaq: LAZR) in an all-cash, $110 million transaction. The unit includes high-end fabrication equipment, patents and a team that has experience building optical hardware at scale.

Luminar was once a darling of the autonomous vehicle world, carrying a market value of over $3 billion at its peak in 2021.

It was building the advanced Lidar systems that act as the “eyes” for self-driving cars. But the commercialization of fully autonomous vehicles took longer than the company expected. And earlier this month, Luminar filed for Chapter 11 bankruptcy protection.

Yet the technology the company spent billions developing didn’t stop working just because Luminar struggled to meet its debt obligations. And it turns out that Luminar’s photonics expertise is exactly what the quantum industry needs to scale today.

Why?

Because today’s computers are reaching their physical limits.

You see, traditional computers move information using electrons flowing through silicon chips. And for decades now, engineers have made computers faster by shrinking those chips.

But transistors can only get so small. And we’re now getting close to the point where physics itself is becoming a barrier to progress.

To keep improving performance, we need a different way to move information. And that’s where photonics comes in.

Instead of using electrons, photonics uses light. In many quantum systems, photons — particles of light — can carry and process information more efficiently than electrical signals.

Image: thequantuminsider.com

Light-based systems are the backbone of quantum sensing and ultra-secure communications. And they can operate at room temperature, which eliminates the need for the massive and expensive cryogenic cooling systems that have held back other forms of quantum computing.

But until now, one of the biggest problems with photonics has been on the manufacturing side.

Most quantum companies don’t make their own hardware. They send designs to outside labs and wait. Even small changes to these designs can take months to test, slowing progress and driving up costs.

By bringing this capability in-house through the acquisition of Luminar’s subsidiary, QCI is following the vertical integration playbook used by tech giants like Intel and Apple.

They’re taking control of their own supply chain to ensure they can iterate faster than the competition. In other words, they’re shifting from being just a software firm to becoming a manufacturer of the future.

And this might be the perfect time to make this shift.

Because the global quantum market is still small today. Once you remove research grants and government funding, annual spending is about $1.5 billion.

But long-term forecasts tell a very different story.

Boston Consulting Group suggests the market could continue to grow around 25% a year:

With McKinsey predicting the total quantum technology market could hit up to $198 billion by 2040. That represents the kind of boom we saw with AI over the last decade.

But this growth assumes quantum systems move into everyday industrial use, especially in finance, pharmaceuticals and national security.

And that’s why the momentum behind quantum isn’t coming from the private sector alone.

The U.S., China, and the EU are currently locked in a “Quantum Arms Race,” committing massive amounts of money to ensure they aren’t left behind. China has reportedly committed $15 billion to its national quantum programs. The United States and the European Union are spending billions of dollars of their own.

They know that the first nation to reach the point where these machines can crack any encryption or design any new material will hold the keys to the global economy.

This moment is called Q-Day.

And security experts now believe it could arrive as early as 2028 to 2030.

Here’s My Take

The transition from academic research to physical manufacturing is the most reliable indicator I know that a technology is moving out of its “pre-hype purgatory” phase and is about to explode.

QCI is spending $110 million to own its own fabrication tools and improve its manufacturing expertise. That’s the move of a company preparing to build physical systems at scale.

And the urgency to build “quantum-resistant” infrastructure before Q-Day is creating a massive and forced buyer’s market for exactly the kind of hardware QCI is now positioned to manufacture.

That means we could soon witness the industrialization of the impossible.

I’m not saying that quantum is about to break into the mainstream quite yet.

But I am pointing out that the gap between today’s roughly $1.5 billion quantum market and tomorrow’s nearly $200 billion industry represents a significant wealth-creation opportunity.

And quantum computing doesn’t need a dramatic breakthrough to become economically relevant. It just needs more deals like this one, where companies commit real capital to real constraints.

If that pattern continues, quantum won’t merely feel exciting.

It will feel inevitable.

Regards,

Ian KingChief Strategist, Banyan Hill Publishing

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