Monday, December 14, 2015

Off Topic

Off Topic  - Investing in Quantum Computing

I know this is a commodity blog, but there was important tech news last week. Google announced that they have definitely achieved quantum calculation with their D-Wave II computer. To my knowledge, this is the first quantum computer that has been used to solve a real life problem.

This is a subject dear to my heart because I wrote my doctoral dissertation on a closely related subject: optimizing a function over a countable set with many local maxima (really).

Here's a little background: A quantum computer can be vastly more powerful than a traditional (classical) one. The quantum machine uses the superposition of and between its bits to do much faster calculations over a much larger set of states. No one to my knowledge has replicated a classical computer with quantum bits. However, D-Wave has created a computer that uses the structure of a particular type of problem (optimising a function over a.....) to solve it quantum mechanically.

An important thing to know is that this type of problem is extremely important in real life. Google is undoubtedly interested in its applications to machine learning. Other D-Wave partners include Lockheed, NASA, I-Q-Tel (the venture cap arm of the DoD), and Goldman. This could be used to schedule trucks and airplanes, plan optimal routes, price complicated derivatives, aim interceptors at incoming targets, decrypt current codes. And as they say in marketing: a whole lot more.

Several other companies are working on quantum computing: IBM, Microsoft, Google itself, and probably a bunch I don't know about. However, this is the first clear success. My guess is that they are first to market because they concentrated on a machine that does only one thing. The others appear to be working on more general devices. Microsoft is working on a potentially breakthrough topological machine.

D-Wave claims to have a lot of patents around its technology, but I have no way of knowing what these are and whether they will hold up.

Can you invest in this? Surprisingly you can. An early angel of D-Wave is Harris & Harris, a publicly traded microcap venture/angel firm. They claim to own "between 2.5% and 5%" of D-Wave. Most of their investments are in biotech, and I think they got into D-Wave via its potential for computational biology. The firm's financials are poor. They are losing money and bleeding cash from operations.

Here's my speculative back of the envelope: EV of Harris & Harris is $60 million. If their other investments are worthless and they own 4% of D-Wave, that puts the breakeven value of D-Wave at $1.5 billion. Seems like a decent punt to me. (Note: I am not saying their other investments are worthless. This is for calculation only.)

Risks:
- This is very very very speculative.
- Given the national security implications, it may not be monetized in the usual sense.
- H & H may simply use the investment as an advertisement to attract more money to blow on bad investments.
- I may not know what I'm talking about.

3 comments:

  1. I have owned H&H (symbol-TINY) for years and yes, its been disappointing. The company has been responding to shareholder complaints and has indicated a dividend is a possibility if the "homerun" materializes.

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  2. Right, they haven't done well. It looks to me as if D-Wave is their home run. They should probably spin it off. Then they can concentrate on their bio stuff.

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Comments are welcome, although I can't promise to answer every question.