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Quantum Computing Stocks Drop After Nvidia CEO’s Dismal Outlook

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Quantum computing stocks experienced a significant decline on Wednesday, halting a year-long rally, after Nvidia CEO Jensen Huang predicted that practical quantum computers are still two decades away. This stark timeline casts doubt on the future of the sector, which had seen optimism due to early-stage breakthroughs but is still far from achieving widespread commercial success.

Huang suggested that while the technology shows potential, “very useful quantum computers” are likely 15 to 30 years away, with 20 years being the most plausible estimate. This forecast contrasts with the rapid growth of the quantum computing industry in recent years, driven by high-profile developments like Google’s December breakthrough in the field.

Stocks of companies like Rigetti Computing, D-Wave Quantum, Quantum Computing, and IonQ plunged by more than 40%, collectively losing over $8 billion in market value. The decline reflects the industry’s current struggle with niche applications and the massive investment needed for future progress. Despite the steep drop, Ivana Delevska, chief investment officer of Spear Invest, which holds shares in Rigetti and IonQ, stated that the 15 to 20-year timeline seems realistic, mirroring the trajectory Nvidia followed in developing accelerated computing.

Despite the long road ahead, quantum computing remains a key area for national security, with governments counting on its potential for military applications, particularly in decryption technology. However, the current revenues of these companies are minimal, with IonQ, valued at over $10 billion, projecting $41.6 million in revenue for fiscal 2024, and Rigetti, valued at $4.4 billion, expected to generate just $11 million in the same period.

Analysts, like Richard Shannon from Craig-Hallum, suggest that while these companies are far from profitable, their future revenue growth, particularly from government contracts, is crucial to their long-term potential. Shannon also noted that while quantum computing may disrupt traditional computing, it could ultimately benefit Nvidia, a major player in the accelerated computing space.

 

Nvidia’s Engagement with Activist Hedge Fund Starboard: A Pivotal Moment in the Tech Giant’s Growth

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In 2013, Nvidia faced growing pressure from its shareholders. Despite holding a strong cash reserve of $3 billion, the company’s stock had remained stagnant for years, with modest sales growth and declining earnings. The company’s market value was $8 billion, but its growth rate was slow, which led to a relatively low price-to-earnings (P/E) ratio of 14 times earnings. The company’s core assets were undervalued, according to activist hedge fund Starboard Value, which had accumulated a $62 million stake in Nvidia by June of that year.

Starboard, founded by Jeff Smith, expressed dissatisfaction with Nvidia’s performance and raised concerns over its underwhelming growth. Nvidia’s leadership, however, was wary of Starboard’s influence, fearing it might push for drastic changes, including a potential restructuring. Despite initial concerns, the relationship never escalated into a full-blown confrontation, with Nvidia’s board avoiding a “DEFCON 1” crisis. Instead, Starboard advocated for aggressive stock buybacks and a strategic de-emphasis on non-core projects like phone processors. By November 2013, Nvidia agreed to buy back $2 billion in stock, a move that triggered a 20% surge in its stock price. Starboard sold its shares by the following March, marking the end of its involvement.

The Mellanox Acquisition: A Strategic Move Prompted by Activists

Though Starboard’s direct influence on Nvidia was short-lived, it played a crucial role in a later, transformative acquisition. In 2017, Starboard invested in Mellanox Technologies, a company that specialized in high-speed networking for data centers. After Mellanox struggled to achieve strong financial returns, Starboard pressured its leadership for better performance, eventually paving the way for a potential sale.

In 2018, Mellanox received a nonbinding offer for $102 per share, prompting a bidding war between Nvidia, Intel, and Xilinx. Nvidia emerged victorious with a $6.9 billion cash offer, finalizing the deal in March 2019. Jensen Huang, Nvidia’s CEO, saw the acquisition as pivotal for Nvidia’s push into high-performance computing and AI, areas where Mellanox’s networking technology, particularly its InfiniBand products, would be indispensable for large-scale data centers.

A Game-Changing Acquisition for Nvidia

The Mellanox acquisition paid off beyond expectations. By May 2024, Nvidia’s former Mellanox division reported $3.2 billion in quarterly revenue, a sevenfold increase from the final quarter of Mellanox as an independent company. Within four years, the Mellanox business had grown into a $12 billion annual revenue stream.

Nvidia’s strategic understanding of the growing demand for high-performance computing, fueled by AI and data analytics, was key to its success. The integration of Mellanox’s advanced networking technology has become essential in scaling AI applications, where minimal latency and efficient data transfer are crucial.

A Strategic Masterstroke

Looking back, Nvidia executives and industry experts view the acquisition as a defining move in the company’s rise to dominance in the AI sector. Jay Puri, Nvidia’s head of global field operations, described it as one of the company’s best-ever acquisitions, thanks to its pivotal role in enhancing Nvidia’s position in the data-center market.

Despite not initially recognizing the potential of Mellanox, Nvidia’s ability to act decisively when the opportunity arose demonstrates its knack for capitalizing on industry trends and executing on large-scale acquisitions. For Jeff Smith of Starboard, the Mellanox acquisition stands as a reminder of the lasting impact activist investors can have on companies, even after their direct involvement ends. As Smith reflected, “We never should have exited the position.”

SoftBank to Receive Nvidia’s Latest Blackwell Chips for AI Supercomputer

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SoftBank’s telecommunications unit in Japan will be the first to acquire Nvidia’s latest Blackwell-designed chips, marking a key step in the company’s ambition to harness artificial intelligence capabilities. The California-based chip giant made the announcement at a recent AI event in Tokyo, featuring both SoftBank Group CEO Masayoshi Son and Nvidia CEO Jensen Huang. SoftBank also plans to incorporate the Blackwell architecture in its upcoming supercomputer, as Son strengthens his group’s investment in AI through strategic acquisitions, including a stake in OpenAI and the purchase of chip startup Graphcore.

During a lively “fireside chat,” Huang recalled an instance when Son, already a visionary in AI, once proposed lending him the funds to buy Nvidia, a company the market undervalued at the time. “He wanted to lend me money to buy Nvidia—all of it. Now I regret not taking it,” Huang said, smiling. Son had made the offer shortly after acquiring Arm, a chip designer he later attempted to sell to Nvidia, though regulatory issues prevented the merger.

Over the years, Nvidia has transitioned from a primary focus on gaming graphics chips to becoming the global leader in AI chip technology, now powering much of the AI revolution. While Son has earned recognition as an early-stage investor in tech, with notable stakes in Alibaba and other successes, he has also faced setbacks, such as his high-profile investment in WeWork.

With telecom firms worldwide exploring new growth avenues, SoftBank and Nvidia are collaborating on a network to support both AI and 5G services, aligning their visions for the future. “It’s the same vision that we can smell, right? It’s like a wolf smell wolf,” Son joked about their shared outlook. Huang responded with humor, “I have two puppies. I don’t like that mental image,” drawing laughter from the audience.