Investors threw 50% less money at quantum last year

Yep, you guessed it – at least some of them swapped investments out for gen AI

Quantum companies received 50 percent less venture cap funding last year as investors switched to generative AI or shied away from risky bets on Silicon Valley startups. Progress in quantum computing is being made, but practical applications of the technology are still likely years away.

Investment in quantum technology reached a high of $2.2 billion in 2022, as confidence (or hype) grew in this emerging market, but that funding fell to about $1.2 billion last year, according to the latest State of Quantum report, produced by The Quantum Insider, with quantum computing company IQM, plus VCs OpenOcean and Lakestar.

The picture is even starker in the US, where there was an 80 percent decline in venture capital for quantum, while the APAC region dropped by 17 percent, and EMEA grew slightly by three percent.

Quantum projects in businesses are also increasingly expected to show a "roadmap to revenue" before increases in investment will be forthcoming

But the report denies that we have reached a "quantum winter," comparable with the "AI winter" periods of scarce funding and little progress. Instead, the quantum industry continues to progress towards useful quantum systems, just at a slower pace, and the decline in funding must be seen as part of broader venture capital trends, it insists.

"Calendar year 2023 was an interesting year with regards to quantum,” Heather West, research manager for Quantum Computing, Infrastructure Systems, Platforms, and Technology at IDC told The Register.

"With the increased interest in generative AI, we started to observe that some of the funding that was being invested into quantum was transferred to AI initiatives and companies. Generative AI was seen as the new disruptive technology which end users could use immediately to gain an advantage or value, whereas quantum, while expected to be a disruptive technology, is still very early in development," West told The Register.

Gartner Research vice president Matthew Brisse agreed. "It's due to the slight shift of CIO priorities toward GenAI. If organizations were spending 10 innovation dollars on quantum, now they are spending five. Not abandoning it, but looking at GenAI to provide value sooner to the organization than quantum," he told us.

Meanwhile, venture capitalists in America are fighting shy of risky bets on Silicon Valley startups and instead keeping their powder dry as they look to more established technology companies or else shore up their existing portfolio of investments, according to the Financial Times.

US venture capital groups have distributed just half of the $435 billion pile of cash they raised from investors during the pandemic-era boom between 2020 and 2022, the FT claims.

This seems to match with the State of Quantum report, which claims that funding for quantum startups began 2023 strongly, and the subsequent slowdown in investment reflects a more cautious approach that took hold of the wider venture capital community during the year.

It notes that several quantum startups went public prior to 2023 by taking the special purpose acquisition company (SPAC) route, only one did so last year. It also notes that some of those that took this route have since suffered declines in their share prices, including Rigetti and D-Wave, which were both threatened with de-listing from the Nasdaq exchange.

According to the report's authors, government backed projects and research centers have stepped up to fill some of the shortfall, ensuring that quantum computing continues to make progress. It cites examples such as the UK’s National Quantum Computing Center (NQCC), due to open this year, and the Israel Quantum Computing Center, which is being overseen by Quantum Machines, a startup focused on developing the infrastructure required to operate quantum systems.

2023 did see some notable progress; both IBM and Atom Computing unveiled quantum systems with more than 1,000 qubits for the first time, for example.

“We have seen the birth of the first quantum processor with over 1000 qubits, as we predicted, while Quantum Origin in China just launched its third-gen quantum computer with quantum services open to global users, which completed over 33,000 requested jobs in just 10 days,” Forrester VP principal analyst Charlie Dai told us.

The report also notes that a Harvard-led team of scientists working with researchers from quantum outfit QuEra successfully executed large-scale algorithms on an error-corrected quantum computer with 48 logical qubits and hundreds of entangling logical operations.

Brisse pointed out, however, that technical advances have yet to feed through to competitive advantages for most organizations.

“While there has been amazing progress on quantum computing as a technology, the business advantage bar has moved very little, if at all for many approaches,” he said.

The State of Quantum report claims that appreciation and understanding of quantum computing’s potential is growing, with financial applications, quantum chemistry, simulation and cryptography regarded as the most promising areas for quantum treatment.

It also warns that there “continues to be a gap between current business needs and the immediate capabilities of many quantum computing systems,” with end users looking for transparency in quantum computing roadmaps, while continued delivery of milestones is essential for building confidence and managing expectations.

The authors believe we will soon see universities launch quantum computing programs and certificates in collaboration with national research centers, that will seek to address relevant skill and talent shortages highlighted by businesses.

Looking ahead, the report highlights a number of challenges facing the quantum sector. One is having on-premise quantum compute resources rather than accessing them in the cloud, for data security and privacy reasons. This is likely to affect financial services, defense, and healthcare mostly.

Quantum projects in businesses are also increasingly expected to show a "roadmap to revenue" before increases in investment will be forthcoming, according to a senior quantum computing research scientist at HSBC bank quoted in the report.

However, the report claims that an increasing number of organizations are aiming to develop their expertise and upskill their workforce in quantum know-how in order to be ready for when the technology takes off.

It also says that some hybrid quantum-classic compute solutions (Dell unveiled such a platform) are already delivering value to some end user organizations, and could help those users to build a bridge to future "pure" quantum computers.

However, the quantum "advantage" and its practical utilization are between five to 20 years away, and the challenge for quantum companies will be keeping interest and investment alive between now and then, the report adds. ®

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