Quantum Computing Will Revolutionize Data Analysis. Maybe Soon

Mar. 14, 2018 4:38 AM ET2 Comments
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Summary

  • Legg Mason affiliate QS Investors recently hosted Caltech Prof. Oskar Painter for a discussion on Quantum Computing (QC).
  • QS Investors President James Norman wrote about how their firm views the impending quantum revolution.
  • Could this have the potential to change the world? Investing or otherwise.

By James Norman, President of QS Investors

We recently hosted Caltech Professor Oskar Painter for a fascinating discussion on quantum computing (QC). Even as quants we had to do more intense than normal research to get up to speed – it is a challenge to understand the technology.

Yet it was worth the effort, because we came away convinced we are about to experience a “quantum revolution,” and sooner than most realize. The physics behind it is very hard, as is the engineering, but meaningful progress is being made. Practical QC devices could be available within the next 5 to 10 years. They have the potential to change the world.

This has been building for a while but there have been two important recent catalysts. First the realization of superconducting circuits with the capability of being a quantum computing platform; the hardware starts to look more like conventional computers and is scalable, which is key for drawing investment. Second was a real technical breakthrough – the first realization of quantum error-correcting (QEC) quantum circuits.

Quantum computers can be game changers because they can solve important problems no existing computer can. While conventional computing scales linearly, QC scales exponentially when adding new bits. Exponential scaling always wins, and it’s never close. QC represents a fundamental shift in computing speed and efficiency, and the types of problems computers can solve. This allows for the successful analysis of far more complex problems.

Examples include the interaction of drug molecules; vehicle driving patterns; and financial market movements and investor behavior patterns. Harnessing QC could lead to the creation of new drugs, dramatically improved hurricane forecasts, safer self-driving cars, enhanced GPS navigation, and more effective identification of stock or bond market inefficiencies.

We also will be able to combine QC with the artificial intelligence (AI) analytics that are already changing industries across the board. Quantum computing could allow AI to grow exponentially faster, overnight. While this will require breakthroughs that remain at least a few years off, it could upend every industry big data touches.

In financial markets, where everyone is always seeking any available edge, the possibilities are vast. Quantum computers could employ machine-learning approaches to identify patterns across huge unstructured data sets: everything from stock and bond prices to consumer buying habits, credit card transactions, economic data, web searches and more.

This greatly enhanced ability to harness big data to identify patterns could lead to far more accuracy in predicting security price movements, well beyond what any human or conventional computer can do.

Extraordinary returns could result for investment professionals who are able to employ these techniques. Similarly-equipped regulators could identify, monitor and react to systematic risk factors they would never see otherwise.

Companies, governments and, increasingly, private investors such as venture capital firms are dramatically increasing their investments in quantum technology. Many top U.S. technology companies are leading the way: IBM, Intel, Hewlett Packard and Google, among others. Microsoft is reportedly pouring resources into developing algorithms that could run on quantum computers.

China also has become a heavy investor, assembling a consortium of research groups that are catching up rapidly to the best U.S. results. Europe has made QC one of its flagship scientific investments, committing a few billion euros. Many nations are putting down big bets on QC.

The global quantum computing arms race is accelerating. Applied quantum physics and quantum engineering are growing and increasingly dominant areas in U.S., European and Asian academic and corporate research and development plans. Companies are competing to hire the best. The field has become a big draw, a magnet for young physicists and engineers. When you ask about their work, they are excited. They believe they can change the world, for the better.

I hope they are right. Enhanced data analysis tools can be easily commercialized, yet the purely scientific possibilities are as endless as they are mind-blowing. We will focus on the financial market implications, trying as we always do to find more alpha for investors, however we can.

Employed on a large scale, QC can do so much for so many. By utilizing quantum computing, we may be able to see the world a little more clearly. That’s always worth the investment.

James Norman is President of QS Investors, a subsidiary of Legg Mason. His opinions are not meant to be viewed as investment advice or a solicitation for investment.

©2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.

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Legg Mason is a global asset management firm that provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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