Don't write off quantum stocks: How to play the space

Foreign. Welcome to Trader Talk, the show that's here to break down what's cooking on Wall street so you and your portfolio don't get burned. But first, let's get to today's market tips. And these are so relevant considering my guest today. Diversify, diversify, diversify. The recent upheaval in what we've seen in the quantum sector and is the perfect example. You might love a single name like Ioniq or QBTS or Rigetti, but when it tanks 40% in one day, that feels very uncomfortable and you can do a fair amount of damage. That's why diversification matters. It dampens the roller coaster ride when an entire corner of the market goes on sale. Spread your bets across varied industries. Think healthcare technology, consumer staples, energy, financials, and across the mid cap space, the market cap space, small cap, mid cap, large cap. If quantum truly is the future, and I think it is, then go for it. But make sure that you have a broad diversified base to balance out the risks and that you will ensure you're not left breathless by near term volatility. And 2 find the disruptors and then do your homework. It's easy to fall in love with a disruptor like recall Amazon was a disruptor at the very beginning, especially if the charts up triple digits in a short amount of time and your buddy at the gym says it is the next big thing, right? A popular story can create momentum, but a big run up doesn't always always mean it's a sustainable story. You've got to do your homework, you've got to understand the story and you've got to be able to educate yourself on the narrative and then make a reasoned decision. And when you decide to jump in, do it methodically. Start small. Dip your toes. Dip your toes because I like to say it gets a sense of how it trades and what it means and how it moves. There's always time to buy more and let's talk about crypto the cryptocurrency industry is poised for significant developments in 2025, influenced by regulatory changes, technological advancements and evolving market dynamics. Key aspects of the current outlook include US Regulatory shifts with the appointment of pro crypto SEC Chair Paul Atkins under the new administration, a more supportive regulatory framework is anticipated to potentially fostering market transparency and innovation. Consumer Protections the US Consumer Financial Protection Bureau, the CFPB has proposed rules requiring a crypto company to align digital wallet security standards with those of traditional banks. This initiative aims to enhance consumer confidence in digital assets and the introduction of Bitcoin Exchange traded funds ETFs has made crypto investing more accessible, more attractive, and it's attracting substantial institutional investment. BlackRock's iShares, the Bitcoin trust, for instance, has amassed over $52 billion in assets. Quantum stocks, the latest disruptors, just took a major beating after Nvidia CEO Jensen Wang, also known as the tech world's Gods, quote, crashed the party at the CES conference out in Vegas. He declared quantum computing is still 15 to some 30 years away, and investors ran for the exits faster than you could say sell. Names like Ionic and Rigetti Computing and QBT and QBTs got hammered and the quantum ETF fell nearly 5%. Oddly enough, on the same day, Nvidia posted job openings for Guess what a Quantum team while slamming Quantum's potential. Was it a coincidence? I'll let you decide. Meanwhile, the broader market continues to struggle as bond yields creep higher, oil dips gold inches up, and the VIX moves into a more anxious territory. We've had appearances from nearly all of the Fed heads and the message has been mostly the same, leaning more hawkish. But they all hedge themselves, saying that they remain data dependent. The strong NFP report this month, along with other strong data points, sent the markets into a tailspin, leaving the Fed in a very interesting position. Investors who were betting on multiple rate cuts this year may find themselves surprised. I don't think we're getting any rate cuts right this year at all, as I think the the the risk is to the upside down. Last week bank of America came out and guess what? They changed their position to match mine. I suspect other big banks are going to be doing the same as we move through the first quarter and assess the coming economic data points that I think are going to suggest that the economy remains robust and that the labor market is not imploding and rates are not nearly as restrictive as they'd have you believe. So if you're licking your wounds from the quantum carnage or or the recent strength in eco data, or the mixed messages coming from different Fed heads after we talk to my next guest, I'm going to treat you to a grilled ribeye served on a bed of fresh arugula and red onions topped off with shaved grana padano cheese. Ladies and gentlemen, get ready for a true force in the world of disruption. In exchange traded funds. She honed her skills at direction, rising through the ranks to become one of the industry's first foremost experts. So much so that her insights have graced cnbc, Bloomberg, Fox Business, the Wall Street Journal, Barron's, Yahoo and Forbes, to name just a few. Now she's the CEO and cio of Defiance ETFs, where she drives the firm's investment vision, capital market strategy, and product innovation. It is my pleasure, ladies and gentlemen, to introduce you to the trailblazing Sylvia Jablonski. So, Sylvia, thank you for joining me. It is such a pleasure to have you today on this podcast.

Thanks so much for having me.

Let's talk about what's going on, because we have to talk about this. What's going on in the quantum space, considering the role that you have as CEO of defiance ETFs and the quantum ETFs you have, and all that kind of chaos that Jensen Huang created a couple of weeks ago at the CES conference. Right. So tell me, tell me. Give me a bird's eye view from where you sit in terms of what that really meant. Are you worried about it? Should investors be worried about it?

Yeah, sure. So, you know, we've had this fund since 2018, and we thought that machine learning, AI and supercomputing were going to be the big themes of technology in the future. The fourth Industrial revolution. And it takes time for things to pan out.

Right, right. So just. Just so the audience understands, the fund is Quantum qt U M, which is the etf. Yes, that's what we're talking about. It's a. It's a. It's. It's a tech and Quantum etf.

Yes, exactly.

So go ahead.

Yeah, and so it's been around for a long time. And then when we had that ChatGPT moment last year with Microsoft, all of a sudden people started finding it and saying, like, wait, this thing says AI and machine learning and Quantum. What is this? But it has all of these great chip stocks in it and all these great tech companies, and the performance has been awesome. Right. So it really started to participate, but then what really changed for that ETF was when Google and Alphabet announced Willow. Right, right. And it took off. And to your point, like, things looked really great. You know, all these stocks, 500, 600, over 1,000% in some cases. Right. And investors really started to open their eyes to Quantum and this feature of technology.

Well, the last three months of 2024, if you look at some of the charts on. Right. If you look at some of the charts on Ionic, Q on Q, U, B, T, Q, B, T, S. You see, they all went like this in a straight line up.

Absolutely. And like, actually, D Wave, IronQ and Rigetti were better performers than Nvidia. And some of the darlings that we've been looking at, which, like, who would have thought?

Right, Right.

And so, you know, we are very excited about that. We, we love that it got some hype. We do think that it's going to take some time to play out, but we don't necessarily agree that it's going to be 15 to 30 years.

Yeah.

And to answer your question, I said this to you when I walked in, like when we heard him talking on the conference call. It's Jensen Huang. What he says, people listen to.

Right. We were like, he's like a God. Because he is like a God.

He's like a God in the industry, but he's a God in the AI GPU chips industry. Right. He's not necessarily known to be an expert in quantum. He's a big investor in Quantum.

Right. And he supports Quantum.

And he supports Quantum.

They put out an ad to hire Quantum. Quantum.

It is physicists. Yes, yes. So Quantum already exists in some form. Right. There's niche capabilities and capacities, but they're changing large sectors within our industry. So, for example, banks and risk management, cryptography, drug research. Right. Like optimizing molecules so that you can basically figure out how to do drug discovery, how to, you know, better drug trials, cancer research, all these things. Like, that's already happening. D Wave is already doing quantum annealing. Right. So some of this exists. It's just not the whole, you know, quantum supercomputers that we're thinking about that are going to work in one second have no errors. Yes. That will take time.

Right. But that's like anything, it'll take time.

Yes. So will AI.

Right. 100%.

Right.

It's interesting, after he came out and made those comments. Yes. And the, and the. And the individual names get absolutely crushed the next day. Right.

Yes.

The CEO from D Wave was actually here at the New York Stock Exchange. I think he was on closing bell, if I remember correctly. And he was challenging what Jensen Huang had to say. Right. That he doesn't believe it's 15 to 30 years out that Jensen Huang didn't understand what he was talking about, which I think is a little bit interesting because everyone thinks of Jensen Huang as, you know, the God. Right. He must know everything about technology and AI and quantum. And so I think it was a little bit of a challenge there. Right. I was actually looking forward to other CEOs, like, we're getting or. Or I ionq to come out and kind of challenge it. And I haven't seen that yet.

Yeah.

Which kind of left me thinking Scratching my head just a little bit because, you know, I own all those things. I own those three. I don't own the etf and actually I should have owned the etf.

Yes.

Because to your point, the ETF is not just those names.

Right.

It's other tech and it's other AI. So, so when all those stocks got crushed the day after, gentlemen, they were down 35, 39, 45%. Your ETF was only down 5%.

Yes, right.

Because it had all the support of those other kind of tech names in the space. Yeah, right.

And you kind of have to do that when you know there are different ways to launch ETFs. Right. Like you could have a pure play on Quantum and that would be great, but you have to understand it would be volatility, pure play. And it's a new innovation.

Right.

We did it because we knew that like who are the top players in AI going to be and in Quantum going to be? They're going to be Nvidia, they're going to be Google, they're going to be amaz. They have the balance sheet for this, they can invest in this. Right. And so if these things take off, they will benefit from them, but, but if they don't on the smaller caps, like they will be a ballast for what this type of thing happens. So that's why we love the etf. Like we purposely created it to do this. On the other hand, you know, IonQ is saying that they're going to come out with their strongest earnings season yet. And you know, we think actually that like if you look at what happened with Nvidia stock around AI, there's been times where the market has come out and said, oh, it's all hype, it's garbage. And video fall, I mean, down 15% now. Right. I think these are buying opportunities. I think we're going to see a lot of investors buying on these dips. I mean we're seeing it in Quantum.

I think they are buying opportunities, especially, you know, and this is what I say when I speak to clients or I speak to people that are just asking me questions. You know, if you've got a good name that's on sale, it's down 15, it's down 20 or 25%. Those are opportunities. Unless the story has fundamentally changed.

Right, right.

Then it's an opportunity for the long term investor. If you're a day trader, you don't care because you're listening to the noise. You want there to be more noise as a day trader because that's what you're doing.

Exactly.

But as a long term investor, you really want to look at those opportunities when those stocks sell off for no other reason. And part of it's a cycle, part of it's some nervousness maybe in the broader economy or because they don't want the Fed's going to do or because there's going to be a change of leadership at the top in the country. Not necessarily not at the company, but in the country that causes people to get nervous. Right. So I do think that opportunities in video, to your point, or some of these other tech stocks that are down 15 or 20%, maybe some of these quantum stocks that are down 40% really provides an opportunity.

Dollar cost averaging at its best. And this happens 100% of the time. Right. Like look at every tech bust that we've had where we've had like a horrible year in tech. The next year you get these, you know, high double digit, triple digit returns and investors who have, you know, systematic process to buy stocks over time. They're the ones who benefit.

They're the ones who'll benefit. Because I don't think Quantum's going away. No, I don't think it's going away.

Right. The innovation didn't stop because you know, he came out and said no, exactly.

Right. And look, the innovation didn't stop when they were questioning AI and you know, listen, I was a perfecting this perfect one to say I'm not talking to a computer, I can't stand it.

I want to talk to now I talk every day.

I talk to my chat GPT like it's you having a conversation because you say good morning chat GPT. It says you good morning, how are you? And I scratch my ass. Who am I talking?

Right. Just think about how far it's come so fast, so fast. The point being with Quantum as well, right? I mean you had the CEO of IBM come out and say that by 2033 they're going to be delivering this high level quantum computer with like qubits at its best. Right. And so who's right, you know, the guy who's working on that thing or the guy who's watching them work on the thing? I don't know. I think there's a lot to be said.

I think you also have to, you also have to think about who's saying it. Right?

Yes.

Jensen Huang, I get it. He's brilliant. He's done an amazing job with Nvidia. There are a lot of very wealthy people because of him. I get it.

Of Course.

But you know, you also have to kind of scratch your head when he makes comments like that at the ces. Is he talking his own book? Is he trying to knock the other ones out of place so that they focus on him? A little bit, I feel like a little bit that's what's happening or that's what happened.

I think it's a little bit of that and I think that it's also a little bit of maybe like a glorified, larger statement than it needed to be. Because nobody can predict whether or not quantum computers are going to be flawless and work really well in 3 years, 5 years, 10 years or 15 years. Same way we can't predict whether all of the AI, you know, that's going to work.

And to your point, who thought even a year ago that I would be where it is today?

Right.

And the way that people are using AI, right. I mean, people are using ChatGPT and Magi and all these other ones in ways that they probably never even imagined.

Right.

When we first started talking about these names. But now they, it's like second nature.

And the world has actually changed because of it. Like if you look at ChatGPT, when you started, when you had, you know, initially started to use it, like it was error ridden. Right. You can't really rely on it for everything right now. It's pretty good.

Pretty good. It is pretty good. I think Jensen One is amazing. I own Nvidia. The firm owns Nvidia. Plenty of people own Nvidia. He's done a great job.

Absolutely.

But I really wonder if he's correct or if he's talking his own book.

Yeah, I mean, it remains to be seen. But I do think that they are slightly different worlds.

Right.

You know, and I think that he's very much the leader in AI, machine learning, innovation. All of a sudden the word quantum took over and some of the stocks that became a little bit suddenly the focus wasn't on.

Wasn't on him.

We'll see. We'll see.

So wait, so talk to me now that we're going to start with earnings season. So just tell me, give me a sense of what you think, how tech is going to perform this earnings season. Season?

Yeah, I mean, I think tech is going to hold up. I think I don't see anything that has changed from last year necessarily.

Right.

You know, we're not going to get these rate cuts that we hope for that are going to just propel the stock forward as fast as we may want to. But I think that you know, large cap tech has, has, you know, earned their multiples, essentially. I expect earnings to be solid and positive for, you know, for these big companies. But just think in general, we're at a solid spot in the economy. Like 2025 could be a good year. We could have low double digit growth, maybe the Fed cuts once or twice, consumers in good shape. So hate the jobs number, inflation.

Okay, so let me ask question. So after what we just saw, you just said you hate the jobs number and inflation's rearing its ugly head. We're going to get more on that.

We need more data.

The next PPI and cpa. We're going to get more on that. And the PPA we've seen for a couple of months in a row now has ticked higher. Small, but it keeps ticking higher. Yes. And the latest one that's, that's due out in mid January. Yes. Is expected actually to tick even higher. Right. So that is raising concern about where inflation is going to go. So I really wonder, are you still in the camp that we're going to get rate cuts or you're in the camp that maybe we won't?

I think we'll probably get a rate cut. I mean, so the problem now is like you also have these wildfires in California that's going to impact, you know, that's going to impact some of this data as well. You had seasonality which impacted some of this data, the hurricanes, things like this.

Right.

Jobs were a little bit hotter maybe than they would have been, I think, because some of this natural disaster type of stuff and will continue to you that way. But I suspect we get a rate cut. I don't think it will be much more than that.

Okay, hold that thought one minute. We're going to be right back. Okay, Sylvia, we're back. So wait, I want to pick up on that conversation because I'm in the camp that we're getting no rate cuts this year.

Okay.

I'm not the camp that we're raising rates, although I do think the risk is that rates could go higher if inflation spins out of control.

Yes.

Right. That's, that's the big question mark for me.

Yes.

Do I think it's going to spin out of control? I don't think it's going back to 9% though. It did. But could we see inflation go from, you know, the two and a half percent it was to four percent or four and a half percent? I think there's a chance we could and I think then that puts the brakes on for the Fed. I Don't see how the Fed can then justify or convince us that it's necessary that they cut rates.

So if they can't convince us of that, they don't do that. The other perspective is that means that things are okay, that's agreed 100%. And so I'm not, you know, I'm not really tied to how many times the Fed's going to cut this year. I'm more tied to, you know, the macro data. Right. Like, what are, what does the consumer look like, is the consumer spending? What is the GDP outlook? It's, it's still, you know, we could still get 2 to 3% growth.

Right.

Corporate earnings look positive, super strong, you know, all of these things. So I think that as long as that holds up, my caveat has always been like, what is your, you know, what is your, the contrarian to your bullish outlook? And it's, it's two things, you know, wars in the Middle east, these things that came up this year.

Right.

Or inflation and rates. Right. So it could happen. Can't predict the future, but I still think no recession, soft landing, and you're, you're better. I mean, you know, up 20% is better than 5%. Treasury, we're kind of there now.

I agree, and there's no doubt about that. I'm just, I just, I tend to be a little bit more conservative in terms of where I think the Fed is going to go and whether or not I think they can really pull it off. And look, current rates are 4 and a half, 475, which I don't think.

Is restrictive so high.

Goolsbee Austan Goolsby from Chicago thinks, oh, rates are so restrictive, they get it on 100 basis points. I go scratching my head going, what are you looking at that the rest of us are not? Now, look, I think for 13 to 15 years, people got used to zero percent rates. There's a whole generation of people behind you and me that think that that's normal. Yes, it isn't. But nor are 20% rates like they were in 1980.

Right, right, right.

Those weren't normal either. But I think, you know, four to six is very much in the normal range.

Right, right, right. Certainly not the end of the world.

Certainly not the end of the world. In any event, listen, this was a great conversation. I so enjoyed it. I want to do this again for sure after we get through tech season and after we see what's happening kind of in that quantum space, because we're going to keep our eyes on it and I'm going to go out and buy some cute utm.

Sounds good.

Before we go, I want to recap today's tips right Diversify Even in the hot sectors, the quantum space is a prime example. It's tempting to pour everything into a single name like Ioniq or QBTS or Rigetti, but watching one stock plunge 40% a day can knock you flat. That's why diversification matters. Consider an ETF like Quantum for a broader approach. Approach and remember to spread out across other industries and market caps as well. Your portfolio will be a lot steadier for the journey. Find the disruptors and do your homework. Don't get lured into it just because it's the latest hot thing without doing your homework. Educate yourself, ask questions and build a position over time methodically. Remember, a soaring stock price doesn't always mean it's a good investment, just means that there's a lot of excitement and momentum and is building. But remember, I was here when the dot com bubble became all the rage and that didn't end well. Still, don't dismiss a good narrative and momentum can and does attract more capital, but it doesn't necessarily confirm legitimacy. And there's a lot happening in the crypto space. Rule changes and regulatory shifts are top of mind as the new administration moves into the White House. Consumer protections are also top of mind as the industry matures, removing the risks to the digital wallet, aligning them to more traditional security standards. And with the proliferation of crypto ETFs, the asset class is quickly becoming much more mainstream. That being said, we need something that we can sink our teeth into. So try the grilled ribeye on a bed of arugula red onions topped off with the shaved grana padano cheese. There's only a couple of ingredients, a nice ribeye, salt and pepper, olive oil. You need the fresh arugula, sliced red onion and the shaved grana padano cheese. This dish is about simplicity. Now just FYI, grana padano is one of the most popular cheeses in Italy. It has a distinctively grainy texture and comes from the Piano Padana region. It's the Po Valley kind of northern Italy. It is a semi fat hard cheese which is cooked and ripened slowly. Minimum time to ripen is usually about nine months for Grano Padano and up to 20 plus months for Grano padano riserva which is more grainy, crumbly and fully flavored. Now for this we want to season a ribeye with salt and pepper, massage it with a touch of olive oil. Allow it to rest at room temperature for 15 or 20 minutes. Heat up the grill. Get it nice and hot. Place the ribeye on the grill and sear it for four minutes, then flip it over and cook for another three to four minutes again, depending on your thickness. Next, allow it to rest for three minutes and then carefully slice it at a diagonal, making it look pretty when serving, place it on warmed plates on a bed of fresh arugula and chopped red onion that's been seasoned with salt and pepper, dried Oregon and a squirt of olive oil and some fresh lemon juice. To finish it, place the steak and then dress it with razor thin slices of the grana padano. Serve it immediately with a house Chianti Bonapest.