Generative AI hype dampens VC funding for quantum computing

Private funding for quantum computing technology dropped sharply in recent months, as the venture capital market shifted its focus to the wildfire growth of generative AI, according to the latest State of Quantum report issued by The Quantum Insider.

In the report – whose publication was backed by two VC firms and a quantum computing company, IQM – the authors describe a roughly 50% decrease (to about $1.25 billion) in VC funding for quantum technology in 2023 when compared to its historic peaks in 2021 and 2022.

Most quantum computing systems these days, according to IDC research manager Heather West, are suitable only for experimentation and proof-of-concept, not live problem-solving. However, some technology is slowly leaking through to the operational side, most notably D-Wave’s quantum annealer device, which is used by large enterprises and some government agencies to solve complex optimization problems.

“It’s not at the exponential speed-up that eventually we would like to see, but it’s an accelerator that’s performing at a significantly faster pace than what we would see from a classical compute standard,” West said.

Nevertheless, generative AI is seen much more enterprise-ready than quantum.

“The portfolios are shifting more toward generative AI in the near-term, but [there are still] long-term strategic bets around quantum,” said Gartner Research vice president and analyst Chirag Dekate. “Generative AI can actually deliver near-term results.”

That ability to be deployed in an operational sense is a key reason for the shift toward generative AI funding among VCs. Quantum computing remains an extremely early stage technology, and the 2021/2022 quantum spending spree might have been out of sync with its true operational potential.

According to Michael Streif, a quantum computing scientist at pharmaceutical company Boehringer Ingelheim, the decreased funding is likely to hit some startups where it hurts. “We were clear from the beginning that quantum computing is in the stage of basic research, and requires at least 10 years to get to an industrial advantage,” he said, according to the Quantum Insider report. “We need less hype and more realistic expectations.”

A slackening of VC funding, of course, isn’t the whole story. Government expenditures on quantum computing dwarf those of the private sector, since the technology is likely to have strategic importance in the future. According to West, quantum should have a starring role in solving a number of difficult problems of international importance, in area like national defense, climate change and materials science. “So there’s just a lot of areas the government can use this technology for,” she said.