We haven’t looked at a Louis Navellier ad in a while, so when he came out with a new pitch this week for Navellier Growth Investor ($49 first year, then $79/yr), I thought I’d take a look… the intro to the ad is all about how you should invest because this is the next “change the world” technology, and because Jeff Bezos has made this his “next big bet” (after e-commerce, Amazon Web Services/cloud computing, and then A.I.).

Here’s how he gets us juiced up about this idea:

“… thanks to the technology you see on screen…

“Something I call ‘QaaS’…

“Bezos has set himself up to capture the lion’s share of a brand-new technology destined to re-write every aspect of the American economy —

“… this technology could disrupt industries totaling over $46 trillion

“And in the process create more millionaires and billionaires…than any other event in history.

“Prompting Yahoo Finance to say ‘QaaS’ technology could… ‘lead to life-changing returns and make you the millionaire next door.’

“And before you start guessing, this has nothing to do with ChatGPT or any of the other generative A.I. software out there…

“Instead, Bezos has made his next trillion dollar bet on the most transformative tech breakthrough of this century…”

And I should note that although copywriters love endorsements, because it makes their pitch seem more legitimate and mainstream and inspires some confidence from readers, it’s kind of sneaky to include that “endorsement” from Yahoo Finance in this particular ad, since that Yahoo Finance article was actually just a reprint of a clickbait article published by Investorplace, Navellier’s own publishing imprint… though it at least wasn’t an article that he wrote personally. More on that in a minute.

So what’s the story here? Navellier is clearly touting quantum computing, which has been a popular teaser target over the years, starting back in 2021 when the quantum computing startups began to go public through SPAC mergers.

What is quantum computing? It’s essentially a way to create massively more parallel computing power by increasing the optionality of one “bit”. That’s not a real explanation, but it’s how I think of it — the real power comes from the fact that quantum computing gets us beyond the limitations of binary computing, where something can only be “on” or “off”, and creates more possibilities for the state of any one bit, which, when multiplied by thousands of bits (or qubits) creates vastly more processing power. Here’s how a more reasonable explanation from Caltech puts it:

“Quantum computers share some properties with classical ones. For example, both types of computers usually have chips, circuits, and logic gates. Their operations are directed by algorithms (essentially sequential instructions), and they use a binary code of ones and zeros to represent information.

“Both types of computers use physical objects to encode those ones and zeros. In classical computers, these objects encode bits (binary digits) in two states—e.g., a current is on or off, a magnet points up or down.

“Quantum computers use quantum bits, or qubits, which process information very differently. While classical bits always represent either one or zero, a qubit can be in a superposition of one and zero simultaneously until its state is measured.

“In addition, the states of multiple qubits can be entangled, meaning that they are linked quantum mechanically to each other. Superposition and entanglement give quantum computers capabilities unknown to classical computing.”

So what does this mean for investing, and why does Navellier think we should be buying now? What does he think we should be buying now? let’s check out some more of the ad, and see what clues he drops…

“… unlike past transformative technologies…

“Forget waiting 10, 20 or even 30 years for a payoff…

“Right now — ‘QaaS’ is seeing explosive growth…

“We’re talking compound annual growth rates 3higher than even the massive e-comm boom of the early 2000’s…

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“I know this sounds dramatic — but you have to realize we’re at a pivotal moment in history —

“I believe years from now people will look back at this time as THE moment everything changed…

“And it’s no exaggeration when I say —

“If you don’t get on board now, you’re going to be left behind forever…

“In a minute — I’ll show you the three simple steps you can take to cash in on this exploding ‘QaaS’ revolution…

“Including the single stock Bezos has invested in that’s destined to control the lion’s share of this opportunity… “

And he makes some pretty extreme claims that I think the folks at Caltech might disagree with…

“This is NOT a prediction…

“‘QaaS’ is not some pie-in-the-sky technology that’s decades out before you see any real practical applications…

“This tech is already being used and is disrupting numerous industries…

“Just ask UPS…

“For years delivery companies were faced with what’s called the “traveling salesman problem.”

“This is the idea that — when you have many different stops to make — calculating the most efficient route to take gets exponentially more difficult with each extra stop you make.

“In fact, with as little as 16 stops, you’ve got over 20 trillion possible routes…

“And for delivery and logistics companies — this is a massive problem and a huge opportunity for anyone who can solve it.

“And several years ago, UPS began using a primitive version of ‘QaaS’ called ORION…

“And ORION’s main job was to calculate the best path for all delivery drivers to take to cut down on stops, traffic lights and wear and tear on the vehicles…

“Was it successful?

“Forbes reported ORION was able to,

‘reduce fuel consumption by over 10 million gallons, carbon emissions by 100,000 metric tons and avoidable costs by $300 million to $400 million each year.’

“Think about that…

“Thanks to this one piece of tech (which is only a fraction as powerful as current “QaaS” technology)…

“UPS was able to save up to $400 million every year!”

So no, to be super clear, UPS did not invent quantum computing when they started developing their Orion system 20 years ago… and they don’t use quantum computing hardware for their route-planning now. Quantum computing is not really of practical use for anyone right now, it’s still largely a R&D project, though huge advances have been made over the past five years to make variations of quantum computing more practical and usable in the real world.

I suppose this kind of logistical challenge, requiring massively parallel analysis of many different variables, is the kind of thing that could be better addressed by quantum computing, once that becomes a practical option, but we’re not there yet.

Still, hope springs eternal, even if we don’t know exactly when quantum computing will become practical for widespread use. Here’s more from Navellier, when he begins to hint more specifically about his secret QaaS stock…

“Logistics and delivery are just the tip of the iceberg…

“If you followed his career, you know Bezos’s publicly stated goal is to move humanity forward.

“Whether it’s Blue Origin and its quest to establish livable colonies on alternative planets…

“Or Amazon’s plan to dominate new industries like health care, pharmaceuticals, real estate, and finance…

“Bezos needs ‘QaaS’ technology to accomplish all of this…

“And that’s why he’s gone all in…

“And why he’s invested in the dominate player in the ‘QaaS’ market…

“A small Maryland firm I call ‘My #1 ‘QaaS’ Stock.’

“A quick look at the numbers shows — this company is a homerun opportunity…

“With patented ‘QaaS’ technology — they’re set to dominate the industry and make an absolute killing… “

So… QaaS is a play on Software as a Service, which has been one of the more impressive business-plan innovations of the past few decades, turning the one-time purchase of a piece of software into an ongoing and recurring revenue stream by making it a subscription instead of a purchase. QaaS is therefore “quantum computing as a service,” which seems to be how Navellier thinks this industry will evolve. Which makes some sense, at least right now, because quantum computing hardware is extremely expensive and finicky. That will probably evolve, but right now most businesses wouldn’t be able to just order a quantum computer and set it up in the basement, so if they want to experiment with quantum computing they’ll essentially buy time on someone else’s machine… not unlike the way all the tech startups of a decade ago bought time on Amazon Web Services instead of spinning up their own server farms.

So what happens when we see this massive step change in processing capability and speed? Well, in part that depends on when it becomes practically useful, and how much classical computing also advances in the interim. Here’s more from Navellier:

“Recently, Google gave a quantum computer one of the most difficult math problems in existence….

“A problem that would take the world’s most powerful supercomputer 10,000 years to solve —

“But thanks to quantum computing, it was solved in less than four minutes.

“The practical applications for this are almost too revolutionary to grasp… “

Yes, in the real world that was “recently” — though in practical terms, for folks who are obsessing about quarterly earnings reports, it was a million years ago — that experiment, when Google used its Sycamore quantum computer to tackle a “10,000 year” task in four minutes, was widely hailed as the first “quantum supremacy” moment. That sounds like an ominous term, but “supremacy” really just means that Google demonstrated that a quantum computer can solve a problem that no traditional computer would be able to solve in a feasible amount of time. There’s some controversy surrounding that claim by Google, because, among other things, others have argued that the 10,000 year task was actually maybe a 2-day task if you really optimize the currently available “regular” supercomputers… but when it comes to practical applications and investments probably the important thing to note is that this achievement by Google was expected around 2017 and actually came in late 2019… and, perhaps more importantly, it’s still largely just a moment of claiming bragging rights in the long development process of quantum computing. “Quantum supremacy” means proving that quantum computing is worth the effort to develop, really, it’s not a practical achievement that means someone — UPS, say — will be using quantum computing next year to tell your driver whether he should stop first at your house, or at your neighbor’s house across the street.

Still, those first computers that filled a room and required teams of trained technicians to do addition problems didn’t seem entirely practical at the time, either, and here we are, about 80 years after those early ENIAC computers became available, and those early commercial computers would be completely unable to keep up with a calculator that you might buy at a gas station for $2.99. It’s hard to know exactly when breakthrough moments might happen, or what the speed of advancement might be.

OK, enough general stuff… what’s that “small Maryland firm?” Here are the rest of our clues…

“Up until recently —

“Due to quantum’s extreme cost, overwhelming complexity, massive size and need to be kept at almost absolute zero (-459 degrees)…

“The benefits of quantum computing have been largely theoretical…

“But now — thanks to My #1 QaaS Stock…

“And a single piece of technology they’ve patented called an ion trapper… everything’s changed…

“Made of a composite group of highly specialized materials including silicon, quartz and sapphire…

“The ion trapper has allowed my #1 QaaS stock to take quantum computing out of the physics lab…

“And create the first ever commercially viable quantum computer that:

“Operates at room temperature…

“Is a fraction of the size of traditional quantum computers…

“Is stable enough to operate in any environment (including a plane)…

“And is as simple to use as any laptop…

“And get this — the computer is 32,000 times more powerful than any other quantum computer on the market… “

So yes, as you might well have guessed would be the case for anyone promoting quantum computing as an investment at the moment, Navellier is recommending the company that is widely regarded as the most advanced “pure play” company in this space right now, and certainly the closest thing to a “survivor” among that depressed group of stocks today — that’s IonQ (IONQ), which was started based on research at the University of Maryland and still calls that state home (though Jeff Bezos has a more direct investment in D-Wave Systems (QBTS), another quantum computing pioneer that went public through a SPAC merger recently — that one’s also based on quantum projects that go back about 25 years, though is far smaller and is a West Coast company, with Canadian roots).

Here’s how IonQ describes themselves:

“The dawn of the quantum age is here. IonQ is developing quantum computers designed to solve the world’s most complex problems, and transform business, society and the planet for the better.

“Founded on more than 25 years of pioneering academic research, IonQ is developing trapped-ion quantum computers, bringing this powerful technology out of the lab and into commercial, industrial, and academic applications. Ionized atoms are the heart of our quantum systems, and as a result, we believe our computers can perform longer, more sophisticated calculations with fewer errors than any quantum computer yet built.

“Poised to be the first mover and a leading player in the quantum revolution, IonQ is deeply committed to expanding quantum access to more people in more places. We lead the market with the first and only quantum hardware integrated with all major cloud platforms, quantum programming languages, and quantum software developer kits, empowering people from all walks of life to solve real-world problems and optimization challenges across chemistry, medicine, finance, logistics, and much more.

“With a business model aligned to rapid quantum market growth, an unparalleled technological advantage, and a deep history of quantum innovation and leadership, we believe we are well-positioned to lead the way forward as quantum computing changes the world.”

Artificial intelligence excitement was good for IONQ last year, probably because a lot of investors got the idea that since NVIDIA is leading AI thanks in part to the faster/stronger chips they make for processing all that data and turning it into something resembling “intelligence,” maybe a new generation of faster/stronger quantum computers will take it all to the next level, and quantum computing will become as big a home run as GPU chips were for NVIDIA.

The challenge is that the story is more interesting than the financials. IonQ is growing its revenue very fast, but it’s growing its cost of goods, R&D spending, and sales and marketing expenses even faster… so in 2023 they reported $22 million in revenue, but still burned through $80 million in cash, even after they used $70 million in stock-based compensation to capitalize their expenses. And $22 million for incoming sales is not much better than a rounding error to start with, not when you’ve got a market cap of $1.75 billion (and when the AI excitement really bubbled up last summer, that number got to about $4 billion).

They do still have a ton of cash, about $350 million on the books as of December 31, thanks to that stock-based compensation and some offerings to raise more money after their initial SPAC merger, so they’re not in trouble, but they’re a long way from being a self-sustaining business. Even the analysts who are modeling them out to keep doubling their revenue each year do not see the company even coming close to breaking even in the next few years.

Which means you’re on your own, frankly — the fact that the company doesn’t really mention anything about their financial performance in their investor presentations means I’m way out of my league. Their investor updates are about the various R&D partnerships they have, about their own belief that they are the leading enterprise-scale AI project and could become relevant as an enterprise service provider now, and about how they’re “ahead of schedule” on their technology roadmap and are “production ready.”

None of that means much to me… so I can tell you, sure, this is the most polished and most impressive-sounding publicly-traded quantum computing company, and they are doing a lot of work, and maybe you will want to speculate on IONQ shares as a way to get a small piece of the theoretical future, based on the hope that IonQ will remain a leader at some point when quantum computing as a service, or the sale of quantum computing hardware, becomes a financially viable business.

But I would be blowing smoke if I told you I knew why IonQ should be considered a better investment than the other few quantum computing “pure plays” who came public in the past few years, or than the many venture-funded projects, or, probably more importantly, better than the more “hidden” quantum computing projects in commercial (Google, IBM, etc.) and academic labs around the world.

It’s a cool idea, maybe it will become a good business someday… right now, it’s a R&D project with some impressive partners, a slide deck full of important-sounding technological advancements that I don’t understand, and enough cash to survive for a few more years.

I’ll leave that for you to discuss among yourselves. In case you’re curious, Louis Navellier’s PortfolioGrader service, which freely provides the “grades” on which Navellier’s quantitative trading systems are said to be built, gives IonQ a “C” right now. Which makes sense, Navellier’s systems have generally been based on finding stocks where the revenue, earnings and analyst estimates are all trending higher or “surprising” in a positive way, and none of those numbers are really all that relevant for IonQ right now, the analysts don’t know what to think, the revenue is growing fast but expectations of that haven’t changed much, and the cost of those revenues means that there are no earnings, and I don’t see how analysts can do much more than make wild guesses about when that might change.

I will say, though, that I think we might well have a LONG way to go before QaaS “goes mainstream.” That doesn’t mean you can wait and expect to buy IONQ for $8 in five years, like you can today, but it does mean you probably have a long time to think this over before quantum computing is as commercially viable as Amazon Web Services was in 2006, when Amazon was first offering up some access to their vast computing power to outside users.

That was obviously a good time to buy Amazon, it was trading at about $2 in the Spring of 2006, split-adjusted… but buying a few years later at $4 would have been perfectly fine, too… and waiting until they started to break out their AWS business for investors, starting about ten years ago, would have been profitable, too, it was around $15 then. It’s OK to not be first. Even if you do pick the very best company — which was certainly not obvious to everyone who looked at Amazon in 2006 or even in 2014, including yours truly — you don’t have to pick it early, it’s OK to wait until the story is less risky later on, and when it becomes more likely that the company will have a financially viable future, even if it means you pay more. Heck, you might even be able to pay less — Navellier has touted this as a “next NVIDIA” idea, too, like some other folks, just because NVIDIA made breakthroughs in developing better and faster parallel processing chips a decade or two ago that eventually became the foundation of the current AI mania, turning NVIDIA into the market darling again… but NVDA was also a regular and perennial disappointment for investors during its first 15 years as a publicly traded company, it went public during the dot-com mania in 1999, and was even a profitable company at the time, but didn’t really start to outpace the market in a meaningful way until 2015.

We remember and lionize those who picked Amazon in 2006, or who were early investors in Facebook or Twitter, both of which were launched at about that time, or who recognized the potential of Alphabet’s purchase of YouTube in 2005 (EVERYONE on Wall Street thought that was a waste of money, we should note). We don’t say the same nice things about the folks who doubled down on Motorola in 2006 because the latest version of their Razr flip phone was going to change the world and finally cut into the dominance of the Blackberry, which was obviously the coolest and most important technology product available, or who noted the early competition in the social media space and put our investing money behind the idea that MySpace, the leader and pioneer, would obviously be able to continue to lead. Survivorship bias is a big deal in investing, we remember the early days of the current giants as if they were inevitable… but that’s not how it works in real time. It’s likely that lots of failures and also-rans, including some who look like obvious future winners to people in 2024, will be forgotten when we’re talking about the leading quantum computing giant in 2035. Assuming, of course, that quantum computing becomes an important commercial business by 2035.

If you want to bet on IONQ as the eventual leader and winner, be prepared for extreme volatility over the next 20 years, and be ready to hold on through what will probably be some big drops along the way — all the massive winners in the world of tech stocks and “next big thing” ideas have had multiple occasions when their stock price fell by 50%+ along the way, and often the worst drops have been more like 80-90%. If you want to trade the stock because you think folks will be twice as excited about it in a year or two as they are today, and you’ll sell then, well, that’s a whole ‘nother thing… more power to you, and good luck.

Sorry got on my survivorship bias soapbox for a minute there… but wait, don’t leave just yet…

We’ve got two other investments that Louis Navellier touts in his ad, and they’re probably businesses that are a bit further along on the path to reaching financial maturity (kind of like humans, companies reach financial maturity when they’re at least roughly self-sustaining, when they don’t have to call home for more money). So what are they?

Well, Navelier’s “Step #1” for getting in on the “next Apple, Microsoft or Netflix long before the crowd” is, of course, buy his “#1 QaaS Company,” which he is peddling with the special report called, “My #1 QaaS Stock: The Tiny Company About to Dominate the Coming $46 Trillion Disruption.” That’s IonQ, which we’ve just been talking about… but there’s another step...

“Step #2 — Two Incredible QaaS Stock’s for Six Figure Paydays

“Although I’ve mostly focused on the big upside of my #1 QaaS company — there are several other ways to play this massive trend.

“In fact, I’ve uncovered two stocks that could turn out to be nice 6-figure paydays…

“As we’ve covered the QaaS trend is exploding…

“And with all this growth — there’s a ton of cash flowing into the sector…

“As Mckinsey & Company noted, “Quantum Computing is Receiving Record Investments”

“And I’ve found the best two ways to play it… “

So what are they?

“Stock #1 — Is an Austin, TX based company that specializes in cloud security.

“Thanks to their proprietary technology — this is one of the most profitable in the entire industry, since 2017 their sales growth has a CAGR of over 3,000% …

“In fact, they’re the first company to hit $1 billion in revenue on AWS’s marketplace.

“And now as they begin implementing QaaS technology they’re about to cash in huge.

“They’ve already got massive investors including BlackRock, Vanguard and State Street.

“And have a huge client list including AWS, Google and the City of Las Vegas…

“But compared to what’s coming that’s nothing…

“Thanks to ‘QaaS’ and other breakthrough technologies, experts are projecting this company to be a trillion dollar behemoth in just a few years.”

Which means either Navellier or one of his copywriters made a booboo, because of course nobody has had their revenue grow at a 3,000% CAGR since 2017. That “A” in CAGR is for Annual, the acronym stands for Compound Annual Growth Rate. Sure, it’s impressive that this company did grow its earnings by 3,000% from a starting point in 2017, and they actually reached that milestone a while ago, back in 2022… but they didn’t average 3,000% annual growth. That would have grown their $50 million in revenue back in 2017 to about $1.4 quintillion in 2023.

Since 2017, the revenue CAGR for this “secret” has been almost 70%, which is amazing… that’s what it means to go from about $50 million in revenue to over $3 billion in revenue. The company Navellier is talking about is CrowdStroke (CRWD), which was also the first cybersecurity vendor to reach $1 billion in revenue through the AWS marketplace. And yes, they’re an impressive company, and an expensive one — they’re also a pretty popular pick of late, we’ve written about a couple CrowdStrike teasers in the past few months, and it’s a very large and widely-followed company so I’ll just repeat what I said about them last week:

“This is probably among the most scalable businesses I’ve looked at in cybersecurity, but at this price it would really have to be. CRWD is consistently profitable and is growing very quickly, with revenue and earnings growth both expected to be in the 25-30% neighborhood over the next couple years, but it’s also changing hands right now at about 100X forward earnings estimates. The only other giant player in this space, Palo Alto Networks (PANW), is expecting roughly 15% revenue growth and 20% earnings growth, and is valued at about 50X forward earnings, so none of the big players are trading at real discount prices right now.”

CrowdStrike, incidentally, has been graded at “A” by Navellier’s PortfolioGrader since December… though it was also a “D” a year ago. Looks like a pretty typical pick for him, given recent quarterly performance — lots of “beat and raise” quarters, strong growth in revenue and earnings, and rising analyst estimates.

What else do we get from Navellier?

“Stock #2 — Is one of the biggest players in the A.I. and QaaS space…

“And for over 40 years they’ve built a competitive advantage in almost every aspect of technology…

“Including…cloud computing, cybersecurity, software, gaming, hardware, search…you name it.

“But as of November 8th 2023 — they’ve taken their game to the next level and made a massive investment into QaaS that could drastically improve every aspect of their business.

“And when you consider they’re already a cash cow…with cash flow of $9.1 billion in Q4 2023, this business is set to become the largest company in the world for at least the next 10 years.

“And for any investor who gets in now has the perfect mix of stability and low risk…combined with exponential growth opportunities…

“If you ever wanted the best path to massive gains you need to see this stock.”

That’s almost certainly a reference to Microsoft (MSFT), as you might have gathered from the “largest company in the world” bit, and Microsoft did indeed make a big investment in quantum computing investing in and partnering with a private quantum startup called Photonic, which was announced on November 8. Shades of Microsoft’s investment in Open AI a year earlier, in some ways, so perhaps Navellier is hoping that the quantum “buzz” will help the stock, not unlike the boost that ChatGPT and Open AI probably gave to MSFT shares over the past year or so.

And yes, Microsoft did report $9.1 billion in free cash flow in the fourth quarter — thought that number doesn’t necessarily mean much for them, cash can be a squishy thing at Microsoft, given the complexity of that conglomerate, and their net income for that quarter was about $22 billion.

Incidentally, just as a counterpoint, we also saw two other very large companies, with cash flow not so far from Microsoft’s numbers, give up on quantum computing in recent months — both Alibaba (BABA) and Baidu (BIDU), two of the leaders in China’s technology sector, and longtime investors in lots of growth areas of technology, including AI and quantum computing, abandoned their quantum computing efforts in the last few months and donated those labs to Chinese universities.

I’d argue that Alphabet is likely to be well ahead of Microsoft in the quantum computing race, given their longtime focus on the area… but, well, Alphabet has also put a lot more money and R&D spending into AI than Microsoft ever did, but Microsoft is widely seen as the leader now because they invested in Open AI, and Alphabet is seen as the laggard because they’ve had some publicly embarrassing AI gaffes. You never know what narrative will catch hold with investors. Neither one of them is likely to be meaningfully disrupted by quantum computing anytime soon, nor to make any money from that science.

You probably don’t need me to tell you what to think about Microsoft… it is indeed the largest publicly traded company in the world these days, and it’s getting more isolated on top of the mountain — after the decline in Apple stock, Microsoft is unique in being a $3+ trillion company. It’s obviously a much steadier company than NVIDIA, and has a history of excellent cash generation and earnings growth (Apple, Microsoft, Berkshire Hathaway and Alphabet are the only companies who are close to the point where they might earn $100 billion in net income in a year), but MSFT is actually trading at a premium to NVIDIA these days if you use Wall Street’s favorite metric: NVIDIA is currently changing hands at about 34X forward earnings, and MSFT is at 36X.

I’d argue that Microsoft is much safer, even at that valuation, but I can’t say it’s particularly appealing, and I’m glad I don’t have to buy either one today. If you’re dithering about whether you can stand to buy very large technology stocks at historically elevated valuations, well you can always just punt — throw your money into an S&P 500 index fund and you’ll get quite a lot of exposure to those high-momentum stories, MSFT and NVDA together account for more than 12% of the S&P 500, and you won’t have to think about it.

Over to you then, dear friends — have winners you’d like to bet on in the world of quantum computing? Think Navellier’s on the right (or wrong) track? Let us know with a comment below…

Disclosure: Of the companies mentioned above, I own shares of Alphabet, Amazon, Berkshire Hathaway and NVIDIA. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.