August 23, 2021 – On today’s show, we welcome special guest Peter Chapman, CEO of IonQ. IonQ is a leader in quantum computing and just announced that it is going public in a deal worth $1.4 billion. 

On the podcast, Peter discusses:

  • Starting out in MIT’s artificial intelligence lab at 16 and why he pursued technology
  • The basics of quantum computing
  • How IonQ is different from other quantum computing competitors
  • Some of the risks that quantum computing presents
  • The company’s strategy behind going public through a merger with dMY Technology Group III and its growth plans
  • And more

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Transcript:

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: I’m super-duper excited to have Peter Chapman CEO of IonQ on the show today, recent podcast, we had a literal rocket scientist, and now we have a computer, a phenom, Peter, going into your background. You’re programming computers, 16 years of age at the Artificial Intelligence Lab, MIT, a super, super smart genius type character. You’ve been in the technology industry for many decades, wide ranging career, covering video games, Fintech, even had a stint at Amazon Prime. And now you’re into quantum computing, which is perhaps on the bleeding edge of technological advancement. I was wondering to start things off, setting the stage. What drew you to the technology industry and what are you hoping to accomplish?

Peter Chapman: Let’s see, I started off my career at the birth of the personal computer industry some 40 years ago. And I have watched over, you know, that time waves of technologies such as the personal computer, internet and mobile devices and see them impact every industry and drive the economy as a result. So, you know, it’s being a technologist. You want to be able to kind of look for the formation of these waves and get out in front and be part of them because that’s, what’s driving the technology industry and the rest. And then as a technologist, if you miss out on one of these waves, you quickly become irrelevant. 

Julian Klymochko: Right. 

Peter Chapman: And so, you know, if you’re not careful, you’ll become a COBALT programmer is the analogy. And I think quantum is the next big wave of technology that will power the economy for the next 50 years. And maybe more importantly solve some of humanity’s largest grand challenges.

Julian Klymochko: Yeah, and the opportunities available in this space seem just so wide ranging in terms of what you can accomplish with this brand-new technology, but prior to getting into use cases and things of that nature, I wonder if we could get a high-level overview of, you know, exactly what quantum computing is? And what it seeks to accomplish? For example, I saw this quote in one of your press releases, you stated, “Quantum computing uses information in a fundamentally different way than classical computing. And so, can address a set of hard problems, classical computing may never solve.” Can you explain this?

Peter Chapman: Yeah, and this is probably the hardest part of today’s conversation is trying to explain kind of, you know, quantum mechanics and how that works, right? 

Julian Klymochko: You’re too smart for us, Peter. 

Peter Chapman: Well, and I’ll just make the point too, just for investors that, there’s a tremendous amount of physics that’s involved in an Intel processor and most of us don’t understand how that works, but, you know, so this is digging into the weeds a bit, but I’ll give it my best shot here, and it is a little technical. So, in a classical computer is we have something which is called a bit and it can represent two possible states, either zero or one. And that’s kind of the basis for all of computation. And when you add another bit to that first bit, you double the number of possible states.

So now it can represent four possible states with two bets. And every time you add another bit, it doubles. So, at eight bits, it’s in the computer industry, we call it a bite, a classical computer can represent one of two hundred and fifty-six possible states. But it can only represent one of those two hundred and fifty-six possible states. In a quantum computer, we have something called a quantum bit or a cubit, and it can represent the values of both zero and one at the same time. And if you have eight cubits, they can represent all two hundred and fifty-six states at the same time versus the classical computer can only represent one of those two hundred and fifty-six states. And so, at eighty cubits which is nothing in terms of memory on a classical computer, right? I mean, we’ve got gigabits, but it only eighty cubits in a quantum computer, you can represent all the possible states that are equal to the number of atoms in the universe. And so, with just a very small amount of quantum memory, you can kind of do what an essence is a massive amount of parallel processing. And this is what makes quantum computing so exciting. And I’ll give you just a kind of an example of this in the, kind of the difference between classical and quantum and why we say that classical computing will never be able to do some of the things that quantum. For instance, the internet is protected by a encryption algorithm, it’s called RSA. 

Julian Klymochko: Yeah. 

Peter Chapman: And they say, I guess RSA Corp has said that it would take today’s largest, super computers, three hundred trillion years to hack a single email using today’s largest computers. And large enough quantum computer could do that in under a second. 

Julian Klymochko: Oh, wow.

Peter Chapman: And so, we’re talking about that’s the difference in these things. And so, there’s, you know, there’s a number of problems in particular. There’s a number of business problems and also the problems related to nature, which is quantum in nature, where classical computers just don’t do a very good job. And so, we need a quantum computer to be able to unlock these kinds of secrets of nature.

Julian Klymochko: So, you’re talking about a massive step change in terms of performance analogous to perhaps comparing current computers and computing power with those when you started out many decades ago.

Peter Chapman: Yeah, no, it’s, you know, today we probably are not going to build bigger super computers, not simply because we could add more processors to it. They tell me that the world’s largest supercomputers now consume the power of Hoover Dam. 

Julian Klymochko: Wow. 

Peter Chapman: And no one can afford the electrical bill for one of these massive supercomputers to get a bigger, I mean, they’re consuming the electrical power of small cities now. 

Julian Klymochko: Right. 

Peter Chapman: And so, but amazingly one of our quantum computers runs off a standard wall socket, and soon we’ll be able to, you know, to compete against the world’s largest super computers.

Julian Klymochko: So, there’s a massive energy efficiency gains there, computational power gains. Can you talk about from a practical standpoint, what are some potential use cases? These technological advances from quantum computing can accomplish? I did see some talk about cloud computing applications, financial arbitrage applications.

Peter Chapman: Yep. So, it’s fairly broad because we’re really just talking about a different mode of computation. And so, it’s kind of like asking the question, what are computers good for? computers or, you know, we’ve found so many ways to introduce computers to help us. And it’s a little bit interesting too. These are early days for quantum computers and I kind of feel like, you know, if you went back into the seventies and asked them, what is it they think classical computers will be good for? I think back then they said it was going to be good for calculators, 

Julian Klymochko: Right. 

Peter Chapman: That’s the kind of the imagination. So, I’m sure ten years from now, somebody will come back and look at this and say, oh, Peter lacked complete imagination as to what quantum would be used for. But generally, we think, you know, machine learning and chemistry will be the first application of quantum computers. But as I mentioned, many of nature’s secrets are locked away from today’s classical computers because the nature of secrets are quantum processes. And so, they’re too complex for today’s computers to solve them. So, a quantum computer will be able to unlock these secrets such as, you know, simple things that we see every day, but we don’t understand how it works such as photo censuses. We can’t represent that simulation in today’s classical computers, but it’s a quantum process. And that’s something that we would be able to do on a quantum computer. And that means you could probably build, you know, much better solar cells or the chemistry for next generation batteries or direct discovery. These are all things that we do have kind of a hunting packer approach with today’s classical computers. But now with these quantum computers, we can actually do the simulation to able to do the simulation of the chemistry and get to a much better answer.

Julian Klymochko: Now this market, big growth market expected to be sixty-five billion market opportunity by twenty thirty. So, in the next ten years, there’s got to be other players chasing the same target that you guys. Who are some of the competitors that you need to worry about, that investors need to worry about and what makes IonQ different?

Peter Chapman: Well, first is the market is seeing not only by companies, the world’s largest tech companies as, this wonderful market for the future, but even governments. So, at some level, the United States is competing against China and EU and in a host of other countries in terms of building, you know, these quantum computers, because it is recognized that if we can build a large enough quantum computer, it will kind of power the economy for the next fifty years. So, you see, you know, a great deal of governmental investment in quantum, all over the world. You know, Germany just announced two billion euros, France, the same way, two billion euros. China has put in; I believe it’s thirteen billion into quantum. So, on one level we compete with governments all over the world, and then the world’s largest tech companies are both our competitors and partners here.

So, this would be Google, Microsoft, Amazon, IBM. And so clearly there’s a good group of people who think that quantum is going to be the future. Now to build a quantum computer, you really need two things. You need a perfect manufacturable cubit and the ability to control it. And in IonQ case, we’re using mother nature’s cubit, which is an individual ion and atom, and all adamants within one atomic species are identical to each other. A mother matrix does that for us. We don’t have a manufacturing process where we have to manufacture cubits. So, our cubits are all absolutely perfect. And we have no manufacturing or yield error. Most of our competitors are using manmade cubits, and they’re still working on the manufacturing and yield issues. Then the second aspect is how you interact or control cubit. Cubits fall apart if you play with them too much, I like to say they’re shy. And the real thing is, if you do almost anything with them, they just they fall apart and disappear. And the way that we interact with the cubits is we use lasers in photons and photons, you know, have a very light touch. When I put a flashlight to your skin, you can’t feel it because the photons don’t have enough mass. And what our competitors are doing is they’re running wires to the cubits and boy; they don’t like that at all. And so, they quickly fall apart. So today because of our two different approaches, the choice of the cubit and how we interact with it allows IonQ to be the leader in quantum computing today.

Michael Kesslering: So then when you kind of talked about some of the use cases and who the customer set would be, what sort of pricing model are you using for those customers?

Peter Chapman: Today, the pricing model is competitive with kind of supercomputing pricing, meaning basically several thousand dollars per hour for compute hours. Is there a rough model that we’re using today?

Julian Klymochko: Okay, and from an investor’s perspective, obviously this is brand new technology, the business model at this point, it hasn’t been proven out yet. What are some of the major risks for IonQ investors? Is there like a physical limit in terms of quantum computing? Is there still some potential risks on the product side?

Peter Chapman: Yep. So, there’s, you know, IonQ has a bit of an advantage here in that almost everything that we’re doing is already been done in one of two university labs from the two co-founders. From the University of Maryland and also from Duke University. So, the two co-founders have been doing this for more than the last fifteen years. And so, everything that we’ve done, they’ve already done it once in the lab. Arguable what we’re doing is just taking what they’ve done in the lab and turning it into our product. That cannot be said for the competition. Now having said that there is still a major risk remain. It’s always possible that somebody else has a breakthrough. Although, you know, that’s probably unlikely just simply because this is a complicated area. It’s not the kind of thing where a kid in a garage is suddenly going to come up with a quantum computer. And, you know, the reality is, we’re competing against the largest tech companies in the world. So, that’s heady competition, but interestingly, these companies are both our competition and also some of our biggest partners and investors. And so, you know, it’s an interesting, we both compete against them and we also play well with them as well.

Michael Kesslering: So, zooming, zooming back a bit, I guess, what are some of the ethical considerations? I’m sure you’re asked about this all the time with such power with quantum computing, what are some of those considerations that you have when building something like this?

Peter Chapman: Yeah, I mean if you could get to a large number of cubits, you could break all over encryption and as an example and that would, you know, I believe that there’s been some, DOD people who said, the first people that create the big enough quantum computer that can do that, wins everything because why you shoot down a plane, if all you can do is just simply hack into the plane, break its encryption and turn off its engines, right? So, with this, you know, one of the things that we need to do is to make sure that the technology is used responsibly. Now just, you know, for everyone’s so they can sleep tonight. We’re not going to break your encryption this year. It’s probably more than ten years away. So, no one needs to worry that their internet connection has been broken just yet.

But it is the kind of thing probably ten or fifteen years away that we are going to have to worry about. When we get to a large enough computer, how can we stop, you know, hackers from using a quantum computer to break encryption? So clearly, we need to operate the encryption standards that the world is using and, you know, which is everything from the internet. But my guess is, you know, just about every computer system in the world is using some form of encryption that will need to be upgraded. It’s kind of be a Y2K kind of problem, but probably on steroids.

Julian Klymochko: Right, and when you think of encryption and use cases, one of the main ones or a big one that many investors are interested in is blockchain cryptocurrencies. So, you’re effectively saying that quantum computing word risk, perhaps like the Bitcoin blockchain or make it vulnerable to potential hacking

Peter Chapman: At some point, yes. I mean quantum computers have that potential both in, you know, we already know the algorithms. We already know the quantum algorithms for elliptic curve cryptography, and also for RSA on how to break it. Like I said, the good news is we don’t have a big enough quantum computer to actually do that yet, and that’s still many years away. 

Julian Klymochko: Alright, thank goodness. 

Peter Chapman: At some point, yeah, in the next ten years, we need to make sure Bitcoin as something which is quantum safe. 

Julian Klymochko: Yeah, no doubt. And perhaps many, many other technologies will have to start thinking about that at some point in the future, as this technology develops one huge part of the IonQ story that I do want it to get into the weeds a bit on is the recently announced going public transaction merging with dMY Technology Group III, at a one point four-billion-dollar evaluation. We’ve actually had Niccolo De Masi on the podcast, the CEO of the dMY Technology Group. He’s great, super, super smart guys. I’m glad you too, got a deal going together. So that’s very exciting. I was wondering what’s the strategy for going public at the current stage of your business? 

Peter Chapman: No, it’s a bit of a strange answer. It was actually COVID. And so, when COVID started, there was a discussion about the country entering a great depression. 

Julian Klymochko: Right. 

Peter Chapman: With a forty percent unemployment rate, you know, thank God that didn’t happen, but at the beginning, that’s what the expectation was. And during such events, the ability for companies to raise additional funds dry up. And so COVID kind of showed us and everyone else we’re not in control of our destiny kind of going forward. And so, by going public, it gives us enough funds to be able to get to profitability. And in some sense, he was removing a risk that was outside of our control. I mean, we knew that we were going to have to raise again in, you this kind of time period, because we were about to enter a manufacturing phase and that was going to be expensive. And so, this allowed us to kind of remove the risk, would have been a great shame if mankind had not managed to get a quantum computer because of a pandemic and in fact, actually quantum computers are probably the things that in the future will stop future pandemics. So, it was really that kind of this realization that we needed to raise enough money to be able to get to profitability. Raising money as a company is also a huge distraction. 

Julian Klymochko: Oh, for sure. 

Peter Chapman: And so, this allows us to do it in one swoop and be done with that. And it kind of puts us behind us.

Julian Klymochko: And this deal comes with a big capital injection into the company. There’s the spac cash, there’s the three hundred- and fifty-million-dollar pipe financing participation from Fidelity, Silver Lake, additional institutional investors. What exactly are you going to do with this capital you discussed working to profitability? What are the specifics?

Peter Chapman: It’s really two things. One is miniaturizing what we’re doing today. And also getting to the point of manufacturing. Quantum is like the classical world. What you need to do is build in the future data centers of quantum computers. You put them on a quantum network, not an ether network, but a quantum network and you network them together. And they all act as one big super quantum computer, but that means you really need to be able to get these things to be smaller and cheaper and your cost per tube, it needs to shrink and to be able to get there, you know, blowing [Inaudible 00:21:33] moving what we’re doing today and moving on to specialized chips is an expensive process. 

Julian Klymochko: Right. 

Peter Chapman: And so, it’s really that funds is to be able to shrink it and also to be able to start stamping out quantum computers

Julian Klymochko: Sounds like you guys have a great growth plan happening. I saw your aggressive financial projections where you’re aiming to be, if everything goes according to plan for the company and you guys certainly have huge goals in mind, where do you see IonQ in ten years?

Peter Chapman: You know, people have said that IonQ is, like buying into Intel in the early days. I think it’s actually closer to Nvidia, you know, Jungsang brought in a new mode of computation into the market with GPU’s and we’re doing something very similar now with QPU, Quantum Processing Units. So, I would hope that if we were kind of ten years out, you know, we’re there as one of the three modes of computation, the CPU’s, GPU’s and QPS,

Julian Klymochko: And who wouldn’t have wanted to get into Nvidia at a one point four-billion-dollar valuation. And certainly, would have wanted to at the time, with the benefit of hindsight, right. But this is a fun question from a quantum computing experts’ perspective and a computer hobbyist. What do you think would be the coolest application of this technology? Not necessarily the best commercial opportunity, but just, you know, a really cool opportunity that you think that this technology can solve.

Peter Chapman: So, can I give you two answers? 

Julian Klymochko: Oh, for sure.

Peter Chapman: Okay, one on kind of societally most excited about is improving drug discovery. 

Julian Klymochko: Right.

Peter Chapman: You know, today it takes forever, it’s super expensive. And, you know, when you really look at it, you know, to me, it doesn’t seem much better than a dark border approach to choosing these things. So, I think, you know, if we can use a quantum computer to do the simulation of the chemistry in the quantum computer, or we can run through a million drug trials in the same time it takes today to run one, then I think we can have a huge impact on kind of, you know, mankind and also probably longevity. We can start to cure some of these things. So those are things just kind of on one side, I think that it has a huge impact. On a personal basis, and that’s a hard one to top. I started off at sixteen at the AI lab. And so, I left AI during the eighties because when I was there, we had an eight K of memory and it seemed pretty clear to me that we weren’t going to build how, or, you know, from two thousand and one with eight K memory. Matter of fact, I didn’t think it was going to happen in my lifetime. But I actually think with a quantum computer, we have a good shot at it. And so, [Inaudible 00:24:47] actually fairly excited and what a quantum computer can do for strong AI. We often use the word AI to really mean machine learning. And I’m really talking about the AI that we see in movies where machines are actually fairly intelligent. And so, I think quantum, and I’ve just recently seen some papers where they have stated that maybe our intelligence is actually, you know, a quantum process and quantum chemistry. So, it gives me hope that maybe that’s also something that we might be able to tackle. That won’t be next year, still years to come. Personally, one I’m also interested in.

Julian Klymochko: Yeah, and there’s, a lot of people are hoping that there’s some sort of breakthroughs and AGI, Artificial General Intelligence and, you know, [Inaudible 00:25:39] test and things of that nature where you can have this super realistic artificial intelligence and perhaps quantum computing is the key to that technological development. But Peter, I wanted to thank you for coming on the show today, great place to wrap things up. For investors interested in learning more about the story currently, trading under DMYI, that’s a symbol for dMY Technology Group Three, the spac that IonQ is merging with. And when you guys seal up this transaction become a newly traded public entity, your symbol will be conveniently IonQ, I-O-N-Q. So, thanks Peter, wish you the best of luck. And I mean, you’re working on some really, really cool things here. So, we’ll be following it closely and wish you the best of luck, but from a market perspective, and more importantly, from a technological perspective, because I foresee a lot of really, really cool applications and ultimately benefits to society from this. 

Peter Chapman: Thank you, gentlemen, it has been a pleasure today. 

Julian Klymochko: All right. Cheers. Take care.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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