Excitement about Willow, Google’s highest-performing Quantum AI chip, has sent Alphabet’s shares higher. Following the Dec 9 announcement, shares in Alphabet jumped some 6%. Shares in the Nasdaq-listed company have risen close to 8% over the past five trading days to close at US$186.53 ($249.97) on Dec 10.
Willow's computational performance far exceeds that of traditional supercomputers by a large margin, says Morningstar Equity Research analyst Malik Ahmed Khan in a Dec 10 note.
While Willow and the quantum computing technology that undergirds the chip are not going to be ready for commercial applications in the near term, the launch and the impressive set of results show Alphabet's continued pace of innovation in emerging technologies, he adds.
Willow's most impressive technical dimension was its ability to reduce errors exponentially as more “qubits” were introduced to the quantum system.
While the binary bit is the basic unit of information in classical computing, a qubit, also known as a quantum bit, is the basic unit of information in quantum computing.
Khan says this feature is a “key component”, with error reduction increasing quantum chips’ long-term commercial opportunity.
Alongside error reduction, Willow’s performance, as measured using the random circuit sampling benchmark, was impressive as well, he adds. Willow performed a computation in under five minutes that would take a top-range supercomputer around 10 septillion (10 followed by 25 zeros) years.
Khan is maintaining his US$220 fair value estimate on “wide moat” Alphabet, with a four-star rating against Morningstar’s five-tier scale. This rating means “appreciation beyond a fair risk-adjusted return is likely,” according to Morningstar.
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“We reiterate our view that the market's current view on the impact of antitrust and a perception of Alphabet as an AI laggard is overly punitive,” says Khan, who had called the stock “materially undervalued” in a Nov 22 note, despite the US Department of Justice’s (DOJ) ongoing antitrust case against the company.
“With shares trading up on Dec 10, we believe Willow’s release helped reassert Alphabet's place as a forerunner in the emerging technologies space, which includes speculative bets on potentially transformative technologies such as quantum computing and autonomous vehicles,” he adds.
That said, while Willow is impressive, Khan does not expect the feature to “meaningfully contribute” to Alphabet's top line in the near or medium term.
Charts and table: Morningstar
