The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian Pellejero

NEW YORK, Oct 23 (Reuters Breakingviews) - Washington’s next industrial experiment is both alive and dead. Following reports that quantum computing startups are in talks to secure public funding – which could include the taxpayer taking equity stakes, according to the Wall Street Journal – the Commerce Department says there are no active negotiations. Stocks of speculative companies building next-generation computers nonetheless rose. The White House’s cash-for-shares deals, and mulling of more, has sent a signal. It’s just not a helpful one.

A mooted plan to invest about $10 million apiece in companies including IonQ IONQ.N, Rigetti Computing RGTI.O, and D-Wave Quantum QBTS.N, per the Journal, would represent pocket change in a field that burns nine-figure sums on what remain uncertain science experiments. That’s not to say that quantum computing is a vanity project. A credible machine harnessing bizarre sub-atomic phenomena could surpass ordinary computers at tasks like drug discovery. It could also break crucial encryption methods.

Amid a bitter trade war with China in which key technologies are bargaining chips, it would make sense for Washington to keep a watchful eye. It’s just that backing startups short on tangible results wouldn’t buy much influence. Leaders like IBM IBM.N, which announced a $30 billion investment plan encompassing mainframes and quantum technologies, or $3 trillion Alphabet GOOGL.O already have ample resources and the most impressive proofs of concept.

On the other hand, the clutch of startups including IonQ, Rigetti and D-Wave have collectively lost over $1.4 billion between 2020 and 2024, with more expected this year. The trio’s shares entered October up more than 1,200% since 2022, only to decline between 23% and 39% since October 15, overshadowed by advances from Alphabet’s quantum chip, Willow.

Clearly, these are highly speculative stocks tied to deeply uncertain hopes. They jumped on hopes of a Washington backstop, remaining up in mid-afternoon trading on Thursday. It’s easy to see why. The White House in July signed a generous deal with rare earth miner MP Materials MP.N. In August, it took a 10% stake in chipmaker Intel INTC.O. Earlier this month, it did likewise with Lithium Americas LAC.TO. As the Trump administration splurges on supporting a political ally in Argentina and officials suggest taking even more slices of even more companies, the corporate imagination can run wild.

The risk is that market froth over potential public investments starts misdirecting private capital to marginal companies. If Uncle Sam wants real traction, it already has a playbook. It budgets roughly $1 billion annually for quantum-science research. Less convoluted funding agreements and public-private partnerships, without oddball equity kickers, have already contributed to plenty of breakthroughs: the Defense Department’s DARPA unit is tied to the development of the internet and GPS. Heavy-handed, state-directed capitalism will just misdirect the state and the capitalists.

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CONTEXT NEWS

Quantum computing companies including Rigetti Computing, IonQ and D-Wave Quantum are in talks with the U.S. government about receiving federal funding in exchange for equity stakes, the Wall Street Journal reported on October 23. According to the report, a document from the Commerce Department soliciting funding applications says that a deal could include warrants, revenue sharing and more in addition to equity stakes.

Startup Rigetti Computing is in ongoing talks with the government about quantum funding, CNBC reported citing the company.

However, a department official said that Commerce is “not currently negotiating with any of the companies,” Reuters subsequently reported.

(Editing by Jonathan Guilford; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))