Better Artificial Intelligence Stock: Quantum Computing vs. IBM

Ever since artificial intelligence (AI) technology exploded onto the public consciousness after OpenAI released ChatGPT in late 2022, many businesses have touted their AI abilities. Two that are capable of making significant strides in the field are Quantum Computing Inc. (NASDAQ: QUBT), which also refers to itself as QCi, and IBM (NYSE: IBM).

QCi is developing quantum computers, machines harnessing quantum mechanics to outperform today's supercomputers. This kind of computational potency can supercharge AI, although the tech is still in its infancy.

Veteran IBM shifted its focus to AI and cloud computing after Arvind Krishna became CEO in 2020. It's also developing its own quantum computers.

One of these companies is the better stock investment in the hot AI industry. Read on to learn which one and why.

Image source: Getty Images.

Digging into Quantum Computing

QCi focuses its efforts on light particles, called photons, as the foundation for its quantum computing technology. Photonic quantum systems can operate at room temperature and be miniaturized, which is not the case currently for IBM's quantum computers.

QCi's devices are also useful for sensor equipment, and this, along with their other attributes, makes photon-based quantum machines a promising tech to serve as the AI in self-driving vehicles. After all, QCi's photons can move at the speed of light, reacting quickly to driving conditions. The company sold one of its EmuCore quantum computers to a major automotive manufacturer earlier this year.

The EmuCore machine is excellent at training AI models, since it offers faster data processing time and lower energy usage compared to conventional computers, according to QCi.

However, these capabilities have not translated into many sales. QCi's third-quarter revenue came in at about $384,000, but its operating costs were $10.5 million. The company raised $750 million through an equity offering in October to help fund its operations.

IBM's AI strengths

As of Q3, IBM's AI book of business was $9.5 billion. Its total Q3 revenue came in at $16.3 billion, a 9% year-over-year increase.

Big Blue's growing sales show the company's shift to AI and cloud computing solutions is paying off. Its investments in quantum computing are also delivering results.

IBM recently announced its Nighthawk quantum processor, which is expected to enable quantum advantage next year. Quantum advantage is the point at which a quantum computer becomes more efficient to use than today's supercomputers. It paves the way for wider adoption of quantum machines. QCi has not announced when it can achieve a quantum advantage.

Once IBM reaches quantum advantage, it's poised to deliver unprecedented computing power to AI. In fact, the Nighthawk processor is the most potent of its kind to date. As IBM continues to build more powerful quantum machines, these devices could one day crack the encryption that protects cryptocurrencies such as Bitcoin (CRYPTO: BTC).

Big Blue is also profitable with Q3 net income of $1.7 billion, and it pays shareholders a robust dividend, currently yielding over 2%.

Choosing between Quantum Computing and IBM stocks

IBM's sales illustrate its success in AI, and it's rivaling, perhaps even exceeding, QCi in the quantum computing arena. There's also the matter of share price valuation, where Big Blue possesses another advantage based on the price-to-sales (P/S) ratio, which indicates how much investors are willing to pay for each dollar of revenue generated over the past 12 months.

Data by YCharts.

The chart shows QCi's P/S ratio has been significantly higher than IBM's for some time, indicating its shares are far more expensive. Although QCi's sales multiple has fallen in recent weeks, it's still overpriced compared to Big Blue.

Considering QCi's slim sales and high operating costs, its share price valuation seems excessive. Meanwhile, IBM is generating substantial AI revenue already, and its progress in quantum computers positions it for more AI growth in the future.

Add to this its dividend payments, which the company has increased for the past 30 years, and Big Blue is clearly the superior investment in the hot field of artificial intelligence.

Robert Izquierdo has positions in International Business Machines. The Motley Fool has positions in and recommends Bitcoin and International Business Machines. The Motley Fool has a disclosure policy.