3 Companies Already Working on the Next Phase of Artificial Intelligence (AI)
The field of artificial intelligence is still in its early years, yet several businesses are already working on technology that can become the foundation for AI's future. These companies are developing quantum computing systems capable of processing mountains of data in seconds, which would take decades for a conventional computer.
Quantum machines can execute multiple computations simultaneously, accelerating processing time, while typical computers must process data in a linear fashion. This means quantum systems can evolve AI beyond the abilities of the most powerful supercomputers, enabling AI to drive cars and help find cures to diseases.
Three businesses developing quantum computing technology have achieved impressive results. They are Microsoft (NASDAQ: MSFT), International Business Machines (NYSE: IBM), and IonQ (NYSE: IONQ). Here's a look at how they are creating tech that can drive the next phase of AI.
Microsoft's many strengths
Microsoft may be known for its ubiquitous Windows computer system, but it invested billions of dollars into artificial intelligence, including in OpenAI, the firm that helped to kick off the current AI wave with ChatGPT.
Microsoft's work in quantum computing sets it up to power future AI systems. The company began building quantum machines in 2006 and is pioneering a new type of quantum bit, or qubit for short, which is akin to a bit in a conventional computer. Every quantum computer employs subatomic particles to perform computations measured in qubits.
In April, Microsoft announced a breakthrough in its quantum computers by improving error rates by 800 times. Because subatomic particles are highly unstable, errors in calculations are prone to happen.
The company's error rate achievement represents the most reliable qubit on record, according to Microsoft. This marks a key step in producing quantum computers capable of realizing the next generation of AI.
Moreover, Microsoft's financial strength gives it an advantage in the space. The company has built one of the biggest cloud computing businesses in the world, enabling Microsoft to generate $61.9 billion in its fiscal third quarter that ended March 31, a 17% year-over-year revenue increase.
This helped the company produce strong fiscal Q3 free cash flow (FCF) of $21 billion, up 18% year over year. Microsoft can use its hefty FCF to fuel investments in quantum computing.
IBM's quantum computing successes
IBM's work in AI stretches back to the 1950s. Today, AI is a focus of the company. So, it makes sense that it would also invest in quantum systems.
In fact, IBM is seen as one of the leaders in quantum computing. It was the first company to make a quantum computer available in the cloud in 2016. Since then, Big Blue deployed over 80 quantum systems.
For instance, IBM partnered with Cleveland Clinic to provide AI and implement a quantum computer that was touted as the first dedicated to healthcare research. And last December, IBM released the first quantum computer with a 1,000-qubit processor.
Big Blue can finance quantum computing research because of its solid FCF generation. This not only funds business investments but also the company's hefty dividend, currently yielding around 4%.
In Q1, the company produced $1.9 billion in FCF, up 43% from the prior year. IBM expects 2024 FCF to come in around $12 billion, ensuring Big Blue can continue to fund its quantum computing work.
As an investment, IBM is more of an income stock than a fast-growing tech stock. Its Q1 revenue of $14.5 billion represented only 1% year-over-year growth due to softness in its consulting and infrastructure businesses.
However, its software division, which includes sales from AI and quantum computing, is doing well. This segment produced Q1 revenue of $5.9 billion, a 5.5% increase over 2023.
IonQ's rapid growth
Upstart IonQ, founded in 2015, is a relative newcomer. It's also the only pure quantum computing company on this list, meaning its resources are entirely devoted to this technology.
Despite its brief history, IonQ captured an impressive customer list. Clients include Hyundai, which is using IonQ's tech to build self-driving vehicles, and Oak Ridge National Laboratory, which will use IonQ's quantum systems to improve the U.S. power grid.
These kinds of successes enabled the company to hit $7.6 million in Q1 revenue, a 77% year-over-year increase. IonQ expects to achieve at least another $7.6 million in Q2, up from $5.5 million in 2023.
The firm achieved its latest quantum technical milestone a year earlier than planned, setting it up to reach a tipping point in 2025 where "classical computers will no longer be able to fully simulate an IonQ system," according to the company.
With IonQ, IBM, and Microsoft building technology to deliver the next phase of AI, now is a good time to consider buying stock in these quantum computing giants.
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Robert Izquierdo has positions in International Business Machines, IonQ, and Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends International Business Machines and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
