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Quantum computing is a classic case of the dilemma that confronts investors who like to monitor long-term trends and themes in technology and society. Even now, quantum computing is not an investable theme. The companies now doing the most work on it are too big for any significant effect to make it to their bottom line within a reasonable time horizon for most retail investors. The companies that will be the must-own winning investments in the future probably don’t exist yet. But still, investors have to pay attention. The world is on the cusp of disruption by a set of technologies that will mark a new inflection point in modern industrial history. At the nexus of all those technologies sits quantum computing.
Quantum Computing, Industrial Revolutions, and the Death of Moore’s Law
You’re probably familiar with “Moore’s Law” — the principle first stated by Intel (INTC) co-founder Gordon Moore in 1965 which described the exponential pace of increasing computing power and its declining cost. Over the past half century, power (the density of transistors on an integrated circuit) has doubled, and price halved, about every two years.
The transformation of the modern world has been driven, so far, by three phases of industrialization. First, starting in the late 18th and early 19th centuries, came steam power and railroads. Next, starting in the 1870s, came oil, chemicals, automobiles, electrification, and mass production. And most recently, starting in the 1940s, came computers, digitization, microprocessors, and ultimately the internet. Each of these phases dramatically accelerated the pace of technological and social change: perhaps we could call them the Age of Steam, the Age of the Automobile, and the Digital Age.
If there is a single engine powering the Digital Age, it has been Moore’s Law. Observations like the following are commonplace, but bear repeating: the cell-phone in your pocket has more computing power than a Cray-2 — the 1985 supercomputer whose liquid cooling system captured the public imagination, and which cost $37 million in 2017 dollars.
The exponential rise of cheap computing power has given us a world now on the cusp of functional artificial intelligence and computers that can program themselves and acquire, interpret, and use data at a superhuman and exponentially accelerating pace. Almost any technological innovation you read about in daily media was enabled by the advances of the Digital Age. In the past few weeks, for example, new gene-editing technology has been on the front page (although of course we wrote about it in 2015). This technology would have been impossible without the sequencing of the human genome that the Digital Age, and Moore’s Law, delivered. Only a decade ago, two Ivy League economists, Frank Levy and Richard Murnane, could casually refer to driving a car on a busy street as the kind of task that computers could never master; not only is that impossible task already being done, but investors are discussing how it will transform the bottom line of companies such as Alphabet (GOOG).
But as analysts and industry spokespeople increasingly recognize, Moore’s Law is coming to an end. The Semiconductor Industry Associations of the U.S., Europe, Japan, South Korea, and Taiwan have put out an annual chip-technology forecast for the last 25 years, based on Moore’s Law — and they announced last year that the report for 2015 would be the last. Chip architectures are coming up against hard physical limits as they approach the atomic level.
(There are still some prominent cheerleaders for Moore’s Law; INTC’s CEO, Brian Krzanich, writes that he has “witnessed the advertised death of Moore’s Law no less than four times” during his career. Other executives and analysts observe that if INTC really had the secret to keep Moore’s Law going, they would be doing better at getting their presumably faster and cheaper chips into mobile devices.)
Moore’s Law, then, brought us to the threshold of a new stage in the saga of the world’s transformation by technology: the stage whose first signs include universal connectivity, the internet of things, big data, artificial neural networks, and machine learning. Futurists are glimpsing the world that we’ve discussed in these pages before — a world where self-creating and self-programming computers take humans out of the loop as they unshackle innovation from the cognitive limitations of their flesh-bound creators. And just at this threshold, Moore’s Law is faltering.
What’s Coming Next — Fear and Hope
We predict that you will begin to hear more about “the end of Moore’s Law.” It is a theme that could easily be taken up alongside other current pessimistic themes — for example, that technology and demographics are setting up a deflationary future that will result in permanently lowered prospects for economic growth in much of the developed and developing worlds, or that automation will result in a permanently unemployed underclass that will have to be pacified with a universal basic income (basic income and the internet — the modern “bread and circuses”).
The same sorts of pessimism and anxiety have greeted each phase of the modern world’s path of industrial development. This kind of reaction seems to be an inevitable component of society’s adjustment to the new world that a technological revolution is ushering in. The next phase, which will likely be known as the Age of Artificial Intelligence, will be no different. Investors who allow themselves to be persuaded by pessimistic arguments are simply going to miss out on the most powerful technological, social, and economic trends.
So here’s our take on why the death of Moore’s Law may simply mark the next acceleration of technological transformation, and how Moore’s Law may in fact be reborn with the Age of Artificial Intelligence.
The answer is quantum computing. (If this sounds too much like science fiction, remember: self-driving cars were still science fiction in 2005.)
Quantum Computing and the Rebirth of Moore’s Law
We’ve discussed quantum computing here before. There’s a reason we’re mentioning it again now, which we’ll discuss below, but first here’s a brief refresher.
A classical computer stores data as “bits,” with each bit being represented by a zero or a one. A quantum computer exploits a property of quantum mechanics called “superposition,” in which a given particle may be not just in one state or another, but in both simultaneously. Thus a quantum bit, or “qubit,” may be a zero, a one, or a superposition of both states. The upshot of this is that a classical computer with n bits can be in any one of 2n different states. But a quantum computer can be in all of those states simultaneously. So as the number of qubits increases, a quantum computer’s superiority would increase exponentially.
The hurdles to the arrival of “quantum supremacy” are technical. In order to remain in a superposed state, a qubit must be completely isolated from interaction with the surrounding world. In practical terms, that means that most quantum computing models have to be kept at the temperature of intergalactic space. Critics of quantum computation, including those who once maintained, incorrectly, that it would simply be impossible, focus on the problems caused by “noise” — the random results that can occur because a system is imperfectly insulated from its surroundings.
The New Research That Made Us Go “Hmmmmm”
Recently we read a paper in which a team of researchers from Raytheon (RTN) and IBM (IBM) demonstrated the superiority of a quantum algorithm even in a currently existing, “noisy” quantum system. The type of algorithm tested would be particularly useful in machine learning where a computer is trying to extract useful information from a mass of extraneous information — think of a sensor trying to “see” street signs in a storm. (Interested readers can find the paper here: “ Demonstration of quantum advantage in machine learning,” Nature, April 17 2017. Good luck with the math.)
Results such as this lead us to believe that the naysayers are wrong. Moore’s Law as it existed based on 20th-century classical computing technology may be nearing the end of its lifespan. However, the complex of technologies that are about to usher in the next stage of technological transformation are finding support in the arrival of a fundamentally new and exponentially more powerful computing technology — quantum computing. Even the current early quantum computers are already showing themselves to be perfectly adapted for the coming world of big data, machine learning, and artificial intelligence.
Investment implications: Quantum computing is not yet an investable theme for retail investors. The major public companies developing the technology may never see direct benefits from it that significantly impact their bottom line. The successful small companies that will rise to future prominence probably do not yet exist. Quantum computing will not enter the mainstream for another five to ten years. For now, there are two reasons for investors to pay attention. First, the end of Moore’s Law in classical computing will result in negative news coverage — coverage that should not dissuade investors from attention to the real underlying fundamental trends. Second, when quantum computers arrive, they will not be small and they will not be portable. As this technology arrives, it will be deployed to users through the cloud, and because of its transformative power, it will reinforce the cloud’s dominance.
Please note that principals of Guild Investment Management, Inc. (“Guild”) and/or Guild’s clients may at any time own any of the stocks mentioned in this article, and may sell them at any time. Currently, Guild’s principals and clients own GOOG and INTC. In addition, for investment advisory clients of Guild, please check with Guild prior to taking positions in any of the companies mentioned in this article, since Guild may not believe that particular stock is right for the client, either because Guild has already taken a position in that stock for the client or for other reasons.
To learn more about Guild Investment Management, please go to www.guildinvestment.com.
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