The Morning Download: Quantum Computing Companies Race to Go Public

Good morning. One sector of the markets is heating up as an array of startups race to go public, eager to capitalize on a surge of investor enthusiasm for a potentially world-changing technology.

We're talking about quantum computing here (more on AI and the markets in a moment).

Three different quantum computing companies—Infleqtion, Xanadu and Horizon Quantum—have gone public in recent months. Another five have announced plans to do so later this year. Many are doing so via a SPAC, or special-purpose acquisition company.

“Strike while the iron’s hot, and the proverbial iron’s really hot in quantum right now,”  Antoine Legault, VP of equity research at Wedbush Securities, tells the WSJ Leadership Institute's Isabelle Bousquette.

A renewed interest from the U.S. government and support and developments from the broader tech ecosystem, including Nvidia, is helping drive the moves.

Quantum companies are also following the playbook set by AI, Isabelle notes. The massive economic boom fueled by the AI industry provides a promising model for what quantum could become—and right now appears to be the sweet spot for getting in early.

“You probably want to be in AI just before ChatGPT comes out. You don’t want to be 15 years early, but you don’t want to be 15 years late either,” said Joe Fitzsimons, founder and CEO of recently public Horizon Quantum.

Is quantum computing a strategic priority for your business, or a watch-and-wait opportunity? Let us know.

If quantum promises to change everything eventually, AI is changing everything now—starting with the stock market.

Don't let talk of how the S&P has thrived in the weeks since the U.S. and Israel started bombing Iran fool you. Exclude the AI version of the Magnificent Seven stocks—Broadcom alongside Alphabet, Amazon, Apple, Meta, Microsoft and Nvidia—and the market value is actually down since the end of February, says the Journal's James Mackintosh. 

Check out the chart below.

Part of that AI bet by investors hinges on continued rapid data-center construction in the U.S.—not a guaranteed outcome as more communities speak out against the costs of such installations, from pollution to higher utility bills.

Since then, more than 4,000 people have signed petitions to recall the mayor and three other council members who supported the project.

March was the worst month for reported tech-job reductions in at least two years, according to the tracking site Layoffs.fyi, with layoff announcements affecting some 45,800 tech employees.

But April is vying to reclaim its cruelest month status, with Microsoft and Meta Platforms announcing plans to scale back their workforces in the name of artificial intelligence.

Tech companies frame layoffs as confidence in AI's future, claiming they're not distressed. However, the reality could be more complex.

"Tech companies are in effect playing a game of chicken with each other on capital-spending plans," the Journal's Dan Gallagher and Asa Fitch note.

Firms are engaged in a capital-spending arms race on AI chips and data centers, cutting costs to fund expensive infrastructure investments. "That in turn is heightening competition over who can use AI to help do more with a lot less, freeing up money to spend on expensive chips," they note.

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AI is also creating jobs in Big Tech. The sizes of security details protecting Silicon Valley VIPs are growing, the Information reports.

Meanwhile some software giants are facing a talent exodus. As AI firms prioritize enterprise growth, they are poaching executives from legacy software companies who can help with that effort. CNBC reports that Salesforce, Snowflake and Datadog are among the business software firms losing leaders to OpenAI and Anthropic.

The loan market is telling a nuanced story about AI's threat to software companies and it's more complicated than the so-called SaaSpocalypse, according to the WSJ's Sam Goldfarb.

A Wall Street Journal analysis of 100+ software-company loans shows investors aren't treating all software equally. Since late January, prices have fallen dramatically on average, but the damage varies sharply by sector.

• Vertical software serving specific industries is holding up best, with 40 loans down an average of 4.2 cents on the dollar. 
• Cybersecurity is moderately pressured, with 19 loans down 5.3 cents, as many investors bet on increased threat sophistication driving upgrades.
• Horizontal software is in trouble, 33 loans down 8.8 cents. Data analysis and document-generation tools look especially vulnerable.
• Software-engineering tools? Well you know the story. They are getting crushed, with six loans falling an average of 16.3 cents.

China bans Meta’s acquisition of Manus. Citing national security, China's National Development and Reform Commission ordered Meta to unwind its $2.5 billion acquisition of AI startup Manus, creator of an AI agent that can carry out sophisticated tasks such as writing in-depth research reports.

Manus traces roots to Beijing Butterfly Effect Technology, founded in China in 2022, before relocating operations to Singapore. The WSJ's Raffaele Huang reports that Chinese authorities worry the deal sets a precedent for other Chinese firms circumventing Beijing's oversight. 

More machines. ASML, the world’s only supplier of the complex machines needed to make cutting-edge chips at scale, is racing to meet demand. The WSJ's Kim Mackrael reports that the Dutch company is building new facilities, repurposing existing clean rooms and working on more advanced machines capable of churning out more chips.

An apology from OpenAI's CEO. Sam Altman apologized to the Canadian town of Tumbler Ridge for not alerting police sooner to the activity of Jesse Van Rootselaar, the suspect in a February mass shooting that killed eight people. Van Rootselaar's ChatGPT account was suspended last June after OpenAI's automated review system internally flagged messages describing violent scenarios

A privacy test for cellphone-location tracking. The Supreme Court is weighing a bank-robbery case from Virginia to decide whether geofence warrants are an unconstitutional invasion of privacy, the WSJ reports. The law-enforcement tool allows investigators to obtain cellphone-location data and identify anyone who was near a specific place at a specific time. The case is set to be argued Monday.