Why QuantumScape Stock Remained Elevated After White House Denied Equity Discussion

The prospect of government intervention in the nascent quantum computing sector is generating considerable buzz, even as the Commerce Department downplays reports of imminent equity stake acquisitions. While a spokesperson stated that the department is “not currently negotiating equity stakes with quantum computing companies,” including names like IonQ, Rigetti Computing, and D-Wave Quantum, shares of these companies saw a notable uptick Thursday. This suggests investors remain optimistic about the potential for government support, albeit perhaps in a different form.

The carefully worded denial leaves room for speculation. The use of “currently” could indicate future negotiations, and “equity” opens the door to alternative deal structures. Warrants, for instance, would grant the government the option to purchase shares at a predetermined price in the future, without immediately taking an ownership position. This approach could mitigate some of the financial risk associated with investing in companies still in the early stages of commercialization.

Rigetti Computing acknowledged ongoing discussions with the government. “We are continuously engaging with the U.S. government on funding opportunities,” the company said in a statement, emphasizing the national security implications. “If the U.S. does not lead in supporting these breakthroughs, others will, posing significant risks to our national security.” IonQ and D-Wave Quantum declined to comment.

Previous reporting indicated potential funding awards of at least $10 million per firm in exchange for government ownership. Such a move would represent a significant departure from recent government support for the semiconductor industry, such as the deal with Intel. While Intel’s situation involved a mature company with substantial revenue ($53 billion in FY2024) facing market share challenges, the quantum computing firms are characterized by minimal revenue and substantial cash burn as they develop technology that is not yet commercially viable.

The geopolitical race to quantum supremacy is undeniably heating up. Governments globally recognize the transformative potential of quantum computing and are actively investing in its development. The U.S. views quantum as crucial to maintaining its technological edge over China, particularly in the next generation of computing.

However, the inherent risks associated with investing in pre-commercial quantum technology cannot be ignored. While government support could provide a much-needed boost to these emerging companies, it also exposes taxpayers to the risk of potential losses. Moreover, the hyperscalers – Google, IBM, Microsoft, and Amazon – are making significant strides in their own quantum programs, potentially creating a competitive landscape that is difficult for smaller, specialized firms to navigate. Google, for example, recently unveiled its Willow chip, claiming a quantum algorithm that outperforms supercomputers by a substantial margin.

The government’s potential involvement in quantum computing raises important questions about the role of public funding in supporting cutting-edge but unproven technologies. While national security concerns and the desire to remain competitive are valid drivers, careful consideration must be given to the allocation of resources and the potential for crowding out private investment. The structure of any potential government support, whether in the form of equity stakes, warrants, or other mechanisms, will be crucial in determining its ultimate impact on the development of the quantum computing industry.