Quantum computing on the horizon, but concerns about EU tech funding remain | The Dip Podcast

Key Concepts

• Quantum Computing: A revolutionary technology that leverages quantum mechanics to perform calculations far beyond the capabilities of classical computers.
• Quantum Advantage: The point at which a quantum computer can perform a specific calculation more efficiently than the best classical supercomputer.
• Quantum Supremacy: The point at which a quantum computer can perform a calculation that no classical computer can perform, regardless of time or resources.
• Qubits: The basic unit of quantum information, analogous to bits in classical computing, but capable of existing in superposition and entanglement.
• AI (Artificial Intelligence): Machine learning and advanced algorithms that are increasingly intertwined with quantum computing development.
• Deep Tech: High-risk, high-reward technologies that require significant scientific and engineering breakthroughs, such as AI and quantum computing.
• Capital Markets Union (EU): An initiative to create a more integrated and unified financial market across European Union member states.
• Reshoring/Fine-tuning Globalization: The trend of bringing manufacturing and operations back to domestic countries or optimizing global supply chains.
• Gaza Reconstruction Plan: A proposed plan for rebuilding Gaza following conflict, involving significant financial aid and infrastructure development.

Quantum Computing: A Paradigm Shift

Quantum computing is presented as the "most radical technology we'll ever see," with the potential to fundamentally alter numerous aspects of society and industry. This technology is not a replacement for classical computers for everyday tasks like gaming or spreadsheets, but rather a specialized tool for solving extremely complex problems that are currently intractable.

Key Points and Technical Details:

• Processing Power: Quantum computers can perform calculations at an unprecedented scale. Google's "willow chip" reportedly performed more calculations in 5 minutes than the fastest supercomputer could in 10 decillion years (10^25 years).
• Speed and Efficiency: It promises to enhance the speed and efficiency of AI and algorithms.
• Revolutionary Applications:
  • Drug Development: Accelerating drug discovery from 10 years and $56 billion to milliseconds, with a significantly higher success rate than the current 0.01%.
  • Materials Science: Enabling the creation of new materials.
  • Space Exploration and Science: Facilitating complex calculations for scientific research.
  • Medicine and Treatment: Revolutionizing medical advancements.
  • Logistics and Industry: Optimizing complex operational challenges.
  • Weather Calculations: Improving long-term weather forecasting accuracy from 70% for 48 hours to 100% long-term.
• Threat to Encryption: Quantum computing poses a significant threat to current encryption methods, particularly those based on Shor's algorithm, which are vulnerable to quantum attacks.
• Quantum Encryption: The development of "unhackable" quantum encryption is also a direct consequence, offering a new level of security.

Timeline and Milestones:

• The "ChatGPT Moment on Steroids": Haim Israel of Bank of America predicts a similar transformative moment for quantum computing within the next two to three years.
• Quantum Advantage: The first milestone, where quantum computers efficiently outperform classical computers for specific tasks. This is expected within the next one to two years and already has market applications.
• Quantum Supremacy: The ultimate goal, where quantum computers can perform calculations impossible for any classical computer. Market estimates place this around 2030, requiring systems with approximately 1 million noise-free qubits.
• Shortening Timelines: The projected timelines for achieving these milestones are consistently shortening, indicating rapid progress.

The Interplay with AI:

A crucial factor accelerating quantum computing development is the synergy with AI. AI provides the tools to perform the complex calculations and scientific research necessary for quantum advancements. In turn, once quantum advantage is achieved, it will feedback into AI, elevating AI capabilities to a new level.

Accessibility and Ownership:

Quantum computers are unlikely to be personal devices. They are expected to be highly specialized, with a limited number (thousands) globally, primarily owned by governments. Access will likely be through cloud-based platforms, requiring cooperation between companies, developers, and governments.

Global Investment Landscape and European Challenges

The race for quantum computing dominance involves significant government and private investment, with distinct strategies and challenges for different regions.

Key Players and Investment:

• China: Currently the leader in governmental investment in quantum computing, accounting for 38% of total global government investment (approximately $40 billion).
• Europe: The second-largest governmental investor, with a strategic focus on quantum computing as a potential "reset" technology to regain a technological edge.
• United States: Ranks third in governmental investment (17-18%), relying heavily on its robust private market and "deep pockets" of venture capital.

European Funding and Deep Tech Challenges:

Nadia Calvinho, President of the European Investment Bank, highlights significant challenges for Europe in funding deep tech and scaling startups:

• Fragmented Market: The 27-member state structure hinders economies of scale compared to the unified US market.
• Capital Scarcity: European startups often need to seek late-stage financing in the US for substantial capital raises (e.g., €300-400 million).
• Risk Aversion: While institutional investors like pension funds are inherently risk-averse, a small allocation to riskier ventures could significantly mobilize capital.
• Need for Capital Markets Union: Creating a truly integrated capital market is essential to channel European savings into productive investments within the EU, preventing them from flowing to the US.
• "Incubator of the World" Syndrome: Europe risks being an incubator for startups that then mature and grow in other markets due to funding limitations.
• Deep Tech and Defense: Deep tech (AI, quantum, robotics) and security/defense are identified as critical areas requiring substantial capital investment and a pan-European approach. Europe is increasing its investment in security and defense, aiming for 3.5% of investments by 2025.

The Gaza Reconstruction and Economic Realities

The discussion shifts to the immense challenges and financial implications of rebuilding Gaza and the broader economic situation in the region.

Reconstruction Needs and Funding:

• Scale of Destruction: Gaza is described as 90% reduced to rubble, requiring extensive demining and debris removal.
• Estimated Costs: Initial estimates for demining alone are $0.5 billion, with overall reconstruction costs potentially reaching $70 billion or more.
• Funding Sources: While the US is a major expected donor, China, Arab states (UAE, Saudi Arabia), and the EU are also involved or considering contributions.
• Lack of Economic Sovereignty: A critical missing element in the reconstruction plan is granting economic sovereignty to the people of Gaza.

Economic State of Gaza and West Bank:

• Gaza: In ruins, with destroyed infrastructure, contaminated water, and a need for significant rebuilding of industries like textiles and food processing. Agricultural land faces desertification and contamination.
• West Bank: High unemployment for Palestinians who previously worked in Israel. Dependence on Israel for movement and access is severely limited by checkpoints, new roads, walls, and fences. Increased Israeli settlement activity and violence against Palestinians during the olive harvest are significant concerns.

Israeli Economy:

• Initial Shutdown: The Israeli economy experienced a shutdown at the start of the war, exacerbated by the denial of access to Palestinian workers.
• Recovery and Replacement Labor: The economy is reopening, with Indian and Chinese workers being brought in to replace Palestinian labor.
• Strong Tech Sector: Israel possesses a highly developed free-market economy with a strong tech sector, including quantum computing, drones, and AI, which are being exported globally.

The US Economy and Geopolitical Dynamics

The conversation touches upon the US economy, the impact of government shutdowns, and the broader geopolitical landscape, particularly the AI arms race between the US and China.

US Economic Trends:

• Technology Investment: Driven by AI and quantum computing.
• Infrastructure Investment: Essential for supporting new technologies, requiring more energy, water, bandwidth, data centers, and an upgraded grid.
• Robotics and Automation: Driven by reshoring efforts.
• Fine-tuning Globalization: A shift towards optimizing global supply chains rather than ending globalization.

Government Shutdowns and Uncertainty:

• Impact on Business: Companies struggle with uncertainty during government shutdowns, which disrupt the flow of official economic data.
• Interdependence: The US economy relies on the interplay between government and the private sector, suggesting that shutdowns are unsustainable in the long term.

AI Arms Race and Tariffs:

• US-China Competition: The US and China are engaged in an AI arms race, with the US aiming to reclaim intellectual property, human capital, and investments.
• Tariffs as a Tool: Tariffs are viewed as a primary tool to facilitate this repatriation of resources.
• Bloc Mentality: The global landscape is increasingly defined by blocs, such as a "ChatGPT block" versus a "DeepSeek block."

AI Investment and Bubble Concerns:

• Not a Bubble: Current AI investment is seen as an early-stage phenomenon, with some investments being rationalized over time.
• Essential Infrastructure: The need for data centers, semiconductors, and other resources is critical for AI development.
• Long-Term Gain: Investing in AI now is crucial for long-term survival and competitiveness, even if it impacts short-term returns.

Conclusion

Quantum computing represents a profound technological leap with the potential to reshape industries and society. While significant progress is being made, particularly in the US and China, Europe faces substantial challenges in funding and scaling its deep tech ambitions. The global economic landscape is increasingly influenced by technological competition, infrastructure demands, and geopolitical dynamics, with AI at the forefront of this evolving race. The reconstruction of Gaza highlights the immense humanitarian and financial challenges in conflict zones, underscoring the need for sustained international cooperation and economic sovereignty.