Governments and technology companies are fueling an urgent, high-stakes race to develop quantum power, which promises to revolutionize- and potentially compromise - global security.

Imagine a supercomputer millions or trillions of times more powerful than the most advanced technology today, capable of both discovering life-saving drugs and instantly hacking all digital encryption.

The quantum technology to achieve all that could arrive in as few as five years, some industry players say. It has created an international technological race, and there's a sign the U.S. government may look to increase its bets.

The Wall Street Journal reported on Wednesday that the biggest publicly traded quantum firms, D-Wave Quantum Inc., Rigetti Computing, IONQ Inc. and Quantum Computing Inc. could soon be recipients of strategic government investments.

The White House has since denied that it is in discussions with quantum companies. Nonetheless, optimism for quantum-technology stocks has reignited.

Quantum technology is not a new topic of interest for the U.S. government. In 2018, President Donald Trump, then in his first term in office, signed the National Quantum Initiative Act, authorizing $1.2 billion for quantum research and development over five years. Under President Joe Biden, the CHIPS and Science Act of 2022 reinforced quantum as an area of critical infrastructure and provided additional funding for quantum technology.

Biden also signed the Quantum Computing Cybersecurity Preparedness Act, a law mandating that federal agencies migrate vulnerable systems to quantum-resistant cryptography.

While there are questions about how quickly quantum computing will be able to deliver its promised benefits, geopolitics could create some urgency around investments, as China is currently outdoing the U.S. when it comes to funding domestic quantum players.

As more governments back quantum technology, the stakes are getting higher. The combination of artificial intelligence and quantum computing could unlock new levels of technological advancement, according to a Bank of America Institute report published Thursday, with AI accelerating quantum development and quantum providing the necessary computing power for AI.

The U.S. government launched its AI Action Plan in July of this year with the goal of establishing international technological dominance. It has also taken strategic positions in companies like MP Materials Corp. and Intel. Now some are hopeful that quantum computing will get the same treatment.

The quantum advantage

"Truthfully, today every quantum computer in the world is still a physics experiment that is based on quantum bits as opposed to the regular classical bits that a standard computer is based on," Elizabeth Goldschmidt, a professor of physics at the University of Illinois Urbana-Champaign, told MarketWatch.

Classical computers store information in binary bits of 0 or 1. Quantum computers use quantum bits, or qubits, that leverage the rules of subatomic physics to process information in multiple states simultaneously.

This allows quantum computers to find solutions to problems that are unsolvable by classical computers, especially "large-scale optimization-type problems," Goldschmidt added.

Although shares of Rigetti, D-Wave and Quantum Computing have seen remarkable gains in the last year of up to 3,100%, these companies are still unprofitable, as the technology hasn't yet achieved the scale and feasibility necessary for commercial use. Given this dynamic, government support could give a critical boost to the early stage quantum-computing field.

"Advancements are moving pretty quickly, and the stocks are massively outperforming," Travis Prentice, chief investment officer of the Informed Momentum Company, told MarketWatch recently. "But it's unclear when the revenues from commercialization will come."

Some in quantum computing see the industry being three to five years away from a critical inflection point called quantum advantage, said Subodh Kulkarni, CEO of Rigetti Computing. He added that other companies are more aggressive and see quantum advantage coming sooner.

"That's the time when we can demonstrate superiority in performance or cost with quantum computing compared to classical computing," Kulkarni told MarketWatch.

Rigetti has qualified quantum advantage down to four things, Kulkarni said: a minimum of 1,000 qubits, a minimum of 99.9% two-qubit gate fidelity, a maximum of 15-nanosecond gate speed and some form of error correction.

Earlier this week, IonQ said that it has become "the first and only quantum computing company" to demonstrate 99.99% two-qubit gate fidelity, which is a measure of how accurately a quantum computer's two-qubit gate operation outcome is to the ideal outcome. Quantum gates manipulate qubits to carry out computations. Quantum gate speed refers to the time it takes for a single quantum gate operation to take place on one or more qubits. The faster the gate speed, the more computations can be performed before qubits fall out of their quantum state in a process called decoherence.

Other companies in the industry have different definitions of quantum advantage, he noted.

After the first inflection point, which Rigetti anticipates is three to five years away, Kulkarni said he sees the next inflection point coming eight to 10 years from now, with the emergence of fault-tolerant quantum computing, or FTQC. This type of quantum computing uses error-correction techniques to complete calculations even with interferences in the quantum environment.

"That's when you can really start doing any application in a much better way than classical computers, and you'll be able to deal with applications that classical computers just can't handle right now," Kulkarni said.

Still, "it's extremely difficult" to predict the timeline for a complex technology like quantum computing, Kulkarni said.

The budding excitement around quantum computing doesn't mean classical computers will be replaced, however.

"The way we look at it, quantum computing is going to coexist with classical computing," Kulkarni said. "We think of the world as a hybrid system."

Just as central processing units and graphics processing units currently work together in the data center to power AI, Kulkari thinks quantum processing units, or QPUs, will sit alongside the chips in the future for quantum computing.

In today's data centers, sequential computations are done with CPUs, while parallel processing for AI is done with GPUs.

"Where quantum computing comes in is what we call simultaneous computing - thousands of variables that are interacting simultaneously with each other," Kulkarni said. "Those are extremely difficult to program with CPUs and GPUs today."

That simultaneous computation would improve areas such as weather-forecasting accuracy and drug and material discovery, Kulkarni said.

"The big one, obviously, is encryption and decryption," he said. Quantum computing has the potential to relatively easily break the global and currently used advanced encryption standard, or AES, which involves the same key being used for both encrypting and decrypting data.

Most information is currently encrypted with 128-bit encryption, Kulkarni said, but he can see quantum breaking the most secure version, AES-256, which is used by higher-level organizations such as the military.

"The reason it works is because it's very difficult for a classical computer to break those keys," Kulkarni said. "It takes a thousand years to break a simple 128-bit encryption, because it's multiple variables that can change at the same time."

The way quantum computers are designed has advantages for solving near-impossible encryptions, Kulkarni said, which both excites and scares people in the industry and is leading to more interest in the area of post-quantum cryptography.

When governments are hacked, Kulkarni said the encryption and decryption keys protect stolen data.

"The fear is that once quantum computers can break that encryption key relatively easily, that data becomes completely open to anyone," he noted. "That's why governments are interested and excited" - and why governments around the world are working to understand the ramifications.

The race for quantum supremacy

The U.S. and China have emerged as the leaders in quantum computing, creating a rivalry that mirrors the competition in the semiconductor and energy industries. Similar to the restrictions on semiconductors, the U.S. government has implemented export controls and licensing requirements on quantum technology.

China has announced over $15.3 billion in government funding for quantum technology, significantly more than the $3.2 billion in U.S. government investment, according to a McKinsey report.

China's advancements are not well known by the U.S, according to Kulkarni. "We see periodically some press releases come out from China. Periodically, some papers come out, but it's very few pieces of information we have," Kulkarni said.

While China is at the forefront of government quantum funding, the U.S. still leads in private development and total number of quantum patents.

IonQ, the largest pure-play quantum-computing company, recently launched a new business division focused on quantum services for the U.S. government and allied agencies.

In the future, "an attack against a country could very well be a quantum attack which decrypts sensitive communications of the government, banks or healthcare," Marco Pistoia, the company's senior vice president of industry relations, told MarketWatch on Monday.

The biggest companies in the U.S. are also involved with quantum. On Wednesday, Alphabet Inc.’s Google Quantum AI team announced that its Willow quantum chip had run an algorithm 13,000 times faster than a classical computer in a repeatable experiment. NVIDIA Corp. has been developing hybrid hardware that allows classical computers to perform quantum-control functions, and its corporate venture arm strategically invests in quantum-hardware companies. In August, IBM Corp. and Advanced Micro Devices Inc. announced a partnership to explore integrating quantum computing and existing high-performance computing.

And it’s not just tech companies. Earlier this month, JPMorgan Chase announced a $1.5 trillion initiative to finance and invest in industries “critical to national economic security and resiliency,” with quantum computing being one of them.

While it’s relatively easy to monitor quantum progress made by U.S. companies such as IBM and Google, it’s “near impossible to monitor where the Chinese government is in quantum computing right now,” Kulkarni said.

Pistoia, who previously served as the global head of quantum computing at JPMorgan Chase and as a quantum researcher at IBM, believes quantum will have “revolutionary impacts” on our lives.

“No country wants to be left behind” in the quantum-computing race, Pistoia said.