Oninvest Index: Quantum small-caps have lost most of their gains. Is this the end of the rally?

Quantum technologies are moving from laboratory research to early-stage commercialization, but the gap between their potential and companies’ revenues remains vast. According to McKinsey’s estimates, revenue from quantum companies— which is projected to exceed $1 billion in 2025—could grow to $4.4 billion by 2028, while the global market could reach $60–100 billion by 2035. However, the main beneficiaries of the technology are expected to be not the developers themselves, but companies in the financial, pharmaceutical, chemical, and logistics sectors. Investor interest is already growing rapidly: in 2025, investments in quantum startups increased more than sixfold, reaching $12.6 billion.

The main event of the first half of the year was not a technological breakthrough, but a decision by the regulator. On June 22, 2026, U.S. President Donald Trump signed two executive orders: the first required federal agencies to transition to post-quantum encryption by the end of 2030, and the second called for accelerating the commercialization of the industry.

In the first half of the year, the Quantum Small Caps index—compiled by Oninvest—was updated and now includes 24 publicly traded companies from eight countries. In addition to quantum computer developers, the index includes manufacturers of cryogenic equipment, optics, lasers, materials, and software, as well as companies operating in the fields of quantum communications, sensors, and post-quantum cybersecurity. A common feature of most of these companies is their ability to generate revenue today, without having to wait for the advent of fully-fledged, error-corrected quantum computers.

At the end of the first half of the year, the equally-weighted Quantum Small Caps EW Index rose 66.8%, significantly outperforming the Russell 2000 (+21.9%), the S&P 500 (+9.6%), the Defiance Quantum ETF (+51.4%), and the WisdomTree Quantum Computing Fund (+46.1%). The market-capitalization-weighted version of the index, the Quantum Small Caps CapW, gained 40.4%.

The rapid rise in quantum stocks during the first half of the year gave way to a sharp correction in July. By July 29, the year-to-date gain for the equally weighted Quantum Small Caps EW had fallen to 28.2%, while that of the market-cap-weighted index had dropped to 7.5%. Pressure on stock prices came from profit-taking, a reassessment of companies with nominal revenue, and investors pulling out of highly volatile assets.

That said, the reasons for the correction were macroeconomic rather than sector-specific: On July 23, the yield on 10-year U.S. Treasury bonds exceeded 4.7%—its highest level since January 2025. Since the valuations of most quantum companies are based on expected cash flows beyond 2030, the rise in the discount rate hit them harder than the market as a whole.

The index leader was Japan’s QD Laser—its shares rose 746.3% over the past six months. However, the growth was driven not by quantum technologies, but by demand for its quantum dot lasers, which are used as light sources for optical interconnects in data centers for artificial intelligence. Other index leaders include France’s Riber and Singapore’s Horizon Quantum, while the U.K.’s Quantum Blockchain Technologies was the underperformer, losing 47.5%.

We have selected four companies from the index that investors should keep an eye on:

A Toronto-based Canadian company is developing PennyLane—an open-source Python library for quantum computing—and is building fault-tolerant photon-based quantum computers that, unlike superconducting machines, operate at room temperature without a cryostat. As a result of its merger with a SPAC in March 2026, Xanadu, according to the company itself, became the first publicly traded company fully focused on photonic quantum architecture.

Revenue in the first quarter quadrupled to $2.8 million, although the net loss also rose by nearly 70% to $20.6 million. The company had $272.5 million in cash on hand. Key drivers include potential government support for the OPTIMISM project totaling up to $285 million and expanded collaboration with Lockheed Martin, which is integrating PennyLane into its engineering training program. The main risks include the need to reduce optical losses to scale the technology and the potential dilution of shareholders’ stakes due to preparations for a $300 million stock offering.

According to MarketWatch, three Wall Street analysts are covering Xanadu, and all of them recommend buying the company’s stock. The average price target is $36.7, which implies a rise of approximately 225% from the closing price on August 3.

An American company based in New Jersey is developing quantum optics and integrated photonics, manufacturing quantum devices and photonic chips on thin-film lithium niobate.

It is the only one of the four companies to have ended the half-year in the red: its stock fell 5.5%, and 26.3% year-to-date. In the first quarter of 2026, revenue rose to $3.7 million, compared with $39,000 a year earlier; however, nearly all of the growth came from acquired assets: in February, the company acquired Luminar Semiconductor, a manufacturer of photonic components, for $110 million, and in March, it acquired NuCrypt, a developer of quantum communications, for $5 million. The net loss reached $4.1 million with operating expenses of $19.8 million, but cash on hand totaled $1.4 billion—nearly 380 times the quarterly revenue—and it is this cash reserve that defines the company’s stability today. The company will release its second-quarter results on August 10.

The transition from prototypes to mass production could be a key driver for next year. In June, Quantum Computing closed a deal to acquire NHanced Semiconductors for $73.1 million, with a potential additional payment of up to $72 million, and launched its second factory.

The company's stock has five "Buy" ratings and two "Hold" ratings from Wall Street analysts. The average price target is $18.3, representing more than double the closing price on August 3.

A Singapore-based company is developing software infrastructure for quantum computing: its Triple Alpha environment allows developers to write code once and run it on machines from different manufacturers via an optimizing compiler. The company went public on March 20, 2026, through a merger with the SPAC dMY Squared, raising approximately $120 million, and by the end of the first half of the year, its shares had risen 181.8%, making it the third-best performer on the Oninvest index. Following the July sell-off, year-to-date gains fell to 15.8%.

Revenue is virtually nonexistent so far: the company is deliberately turning down grants and consulting work, according to a Needham report (available to the Oninvest editorial team), and its operating loss in the first quarter totaled $6.5 million, compared with $4.7 million a year earlier. Horizon is betting on its own infrastructure: in January, it launched the Ember-1, a 9-qubit quantum computer, and in 2027, it plans to acquire the IonQ, a 256-qubit system based on a fundamentally different architecture.

This will allow the company to test its software on various types of quantum computers, but the path to commercialization remains long: Needham does not expect significant revenue until at least the end of 2028: On June 3, analysts initiated coverage with a “buy” rating and a price target of $20. The upside potential is about 50% from the closing price on August 3.

Oxford Instruments, a British company founded in 1959 as the first technology spin-off from the University of Oxford, manufactures equipment for the production and analysis of semiconductor and quantum chips.

Its stock rose 46.3% in the first half of the year and 28.5% year-to-date, even though the company sold its quantum business, NanoScience—which manufactured cryostats—for £60 million (about $81 million) in January. However, the company’s exposure to the quantum market remains: quantum applications account for a significant portion of revenue in the “other markets” segment, and the company supplies equipment to Rigetti’s quantum factory in California.

In fiscal year 2025/26, orders rose by 6.4%, to 450.4 million pounds, but revenue fell by 4.6% to 423.2 million pounds, and adjusted operating profit declined by 7.3% to 73.7 million pounds. The main driver was a 28% increase in orders for the Advanced Technologies division, and the order backlog already covers most of next year’s projected revenue. However, the conversion of orders into revenue is lagging so far: the division’s margin fell to 2.6%. Analysts are divided in their assessments: on May 18, Berenberg downgraded the stock to “Hold,” raising its price target from 2,700 to 3,000 pence; on June 10, JPMorgan raised its target from 3,000 to 3,200 pence with an “outperform” recommendation. These targets imply potential upside of approximately 10% and 17%, respectively, from the current share price.

None of these companies is focusing exclusively on a specific type of quantum processor: Xanadu is developing a photonic architecture, Horizon Quantum is developing a software layer compatible with various systems, Quantum Computing Inc. is manufacturing photonic chips, and Oxford Instruments is producing the equipment needed to create them. The key question for investors is whether these companies can turn government programs, contracts, and growing demand into sustainable revenue—and whether they can do so before they have to raise new capital and dilute shareholders’ stakes.

This is not intended as individual investment advice.