Market Speculation for Quantum Engineers
A Guide to Financial Market Movements for scientists, engineers, and academics. No complex matrices needed!
DISCLAIMER - This simple primer can in theory be applied to other emerging technology sectors and is in no way investment advice, but rather a way to understand what is going on in your industry and how not to get caught up in the noise.
Stock price fluctuations are a bet on future perceived growth and value (or lack thereof) or the ability to ‘make money’, not necessarily intrinsic value. Indeed, price changes can be derived by changes in beliefs as well as emotions of those involved. Most of us will naturally follow the tribe - it’s psychologically safer. In 2002 Daniel Kahneman won a Nobel prize for bridging economics and psychology, specifically on ‘judgment and decision-making under uncertainty.’
The great thing about having global public equity markets is that they can provide intra-day liquidity; you can quickly buy into and equally get your money back versus other asset classes, and more importantly they give access to both professional investors and everyday people to get ‘exposure’ to things they think will make them money. Unlike private equity markets or venture capital markets that have a significantly high barrier to entry and are not seen as liquid asset classes.
For smaller cap (read: ‘capitalization’) stocks, the ‘institutional investor’ is no longer always the dominating force, as we have seen by the plethora of trading apps like eToro, RobinHood, etc.
For scientists/technologists out there, you could see the stock price as a measure of ‘current market sentiment’, especially on young small-cap stocks - that is to say, the spot price is how the stock market ‘feels’ about the stock of a company or sector, given that the valuation is often based on predicted growth expectation and not historic business fundamentals.
It is also important to factor in the context of an emerging field relative to larger more established fields, and consider that players with more historical evidence of technological commercialisation can carry significant influence, regardless of relevance or intent etc.
Because of the high-risk-high-reward perception, small-cap stocks can be quite attractive to broad speculative investors looking for potential high-growth opportunities. This can also make them risky in that they can be susceptible to greater intra-day price swings, making them more volatile than mature large-cap stocks.
Let’s take a recent example; If we look at IonQ over the last 6 month period (ignoring this week's price action), we can see a lot of upward price movements. On July 26th it was speculated that Honeywell is considering a Quantinuum IPO valued at USD 10 billion, this was picked up by reputable newswires such as Bloomberg. To our knowledge, this has not been publicly refuted by Honeywell - another key datapoint here.
On that day (26th July 2024) the market cap for fellow ion trap computing company IonQ was just shy of USD 2 billion, and elementary algebra lets us work out that the two market caps, aka their ‘company valuations’, were quite different at that point in time. If you were an interested market participant in the space, this might be intriguing. There are other factors in play, of course, but our aim here is to illustrate how, not why, markets can move.
This is in no way investment advice and should not be seen as endorsement of these companies nor their respective technologies. This is just one tiny sliver of how young markets are often highly speculative and what signals traders such as retail investors may be looking at. (Probably not arxiv.org as much :) ) There are many other ways to take and combine various factors to try and find useful information that may signal to an investor’s intuition that there is an opportunity. This is more a brief explainer on how public announcements and reported speculation may be interpreted by the market.
Ultimately, equity investors are looking for ways to make money and invest on different horizons; hours to days to decades. In the long term, they are most likely looking at how and when products can be converted into profit.
With much of the quantum industry media coverage leaning towards a marketing strategy, versus describing what is going on, the noise will in all eventuality prevail. It becomes difficult for those in the markets to discern fact from hype.
The reality is that there is a significant lack of open impartial quantum computing coverage and commentary, and very little journalistic rigour. Looking at platforms dedicated solely to ‘quantum industry news’ they tend to be composed of content that is either corporate press releases or pay to play industry opinion pieces.
This creates confusion, hype, and more bubbles that don’t tend to burst fairly. The risk is that this puts anything related to Quantum, from nomenclature to actual QPUs, in the territory of Meme Stocks. History shows that the hype may likely harm the vulnerable the most, at the end of the day. Too much volatility can also serve as an unnecessary distraction and distress to those who are working hard in or around the sector to advance the technology and industry.
Sentiment and fundamentals both matter. If there is limited rigour in how we cover the quantum computing industry, then do not expect outsiders to apply any solid long-term investment thesis. This is more about businesses (in the wild) than lab science (in controlled experiments).
This is in no way investment advice. This piece is pointing out some of the dynamics of public markets, for those unfamiliar.
Resources:
Daniel Kahneman Nobel prize (2002): https://www.apa.org/monitor/dec02/nobel.html
Forces That Move Stock Prices on Investopedia: https://www.investopedia.com/articles/basics/04/100804.asp
Intrinsic Value on Investopedia: https://www.investopedia.com/terms/i/intrinsicvalue.asp
Market Sentiment on Investopedia: https://www.investopedia.com/terms/m/marketsentiment.asp
Venture Capital on Investopedia: https://www.investopedia.com/terms/v/venturecapital.asp
Fundamentals on Investopedia: https://www.investopedia.com/terms/f/fundamentals.asp
Asset Classes on Investopedia: https://www.investopedia.com/terms/a/assetclasses.asp
Retail vs. Institutional traders on Investopedia: https://www.investopedia.com/articles/active-trading/030515/what-difference-between-institutional-traders-and-retail-traders.asp
Trade Signal on Investopedia: https://www.investopedia.com/terms/t/trade-signal.asp
Bloomberg Article on Quantinuum: https://www.bloomberg.com/news/articles/2024-07-26/honeywell-said-to-weigh-quantinuum-ipo-at-10-billion-valuation?embedded-checkout=true