Government as a Demand Creator for the Quantum Industry

Commentary by Hideki Tomoshige and Phillip Singerman

Published March 16, 2026

The United States stands at a decisive moment in the commercialization of quantum technologies. While quantum computing, sensing, and networking have advanced rapidly at the research level, private investment remains insufficient to carry these technologies across the "valley of death" into deployable products.

• Quantum computing is demonstrating early, application-specific commercial value. However, achieving large-scale, general-purpose utility will require parallel progress across multiple fronts: hardware, control, and error-mitigation software, application-level algorithms, and integration with existing high-performance computing resources.
• While quantum sensors are among the most technically mature quantum applications, a substantial gap remains between laboratory demonstrations and industrial deployment. Advancing these sensors requires sustained investment to miniaturize devices, improve durability, and reduce production costs.
• Quantum networking also faces fundamental engineering challenges, particularly the difficulty of maintaining quantum states over long-distance transmission. Delivering secure quantum communication-such as through quantum key distribution (QKD)-will require extensive new physical infrastructure and advances in both network architecture and photonic technologies.
  

The central barrier across these frontier applications is uncertainty: long development timelines, high technical risk, and unclear near-term markets keep private capital on the sidelines. To accelerate commercialization and strengthen U.S. technological leadership, the federal government must act as a credible demand creator-not just a funder of research and development and an ecosystem enabler.

Current State of Private Funding for Quantum Commercialization

Commercialization of quantum technologies requires sustained, substantial investment. For example, quantum computers cost tens of millions to build, including facility construction, cryogenic systems, hardware, and maintenance. Quantum sensor development typically takes at least three to five years from concept to prototype, according to an estimate by the Canadian government, with projected costs of $5 million to $10 million per project. Quantum networks are also expensive to deploy. Multiple factors, including network scale, optical fibers, lasers, photon detectors, system reliability, and more, add to the cost.

The existing need for private investment in research and development (R&D) mentioned earlier cannot be covered solely by revenues from sales of quantum sensors, QKD, and post-quantum cryptography (PQC) deployments, quantum computing cloud access fees, or quantum-related consulting services. Current market revenues are vastly outweighed by the capital required for foundational research and infrastructure. And while individual sectors are growing, they remain insufficient to sustain the broader R&D ecosystem.

The global quantum technology sector has entered a commercially hungry era in 2025, marked by a decisive rebound in funding and a shift toward industrial-scale deployment. After a significant 50 percent contraction in private investment from 2022 to 2023, the market has recovered through a hybrid model where massive government commitments provide a safety net for accelerating private capital.

Indeed, long-term government commitments and new achievements in commercialization are improving the return outlook for early investors and the scale of investment. Nevertheless, while the scale and diversification of funding for quantum commercialization have improved, funding uncertainty remains relatively high.

While in-house quantum R&D at big tech companies like IBM, Google, and Microsoft is significant, the $2.6 billion privately invested in quantum in 2024 still only represents 2.4 percent of the $109 billion that private investors in the United States spent on artificial intelligence (AI) during the same period. Quantum's higher technical uncertainty compared to AI contributes to this investment gap. The time and effort required to acquire adequate knowledge also make it difficult for individual quantum companies to internalize profits.

Private companies are using multiple new financing pathways to build their R&D capacity. According to Massachusetts Institute of Technology's Quantum Index Report 2025, from 2012 to 2024, key sources of funding included venture rounds, special purpose acquisition company (SPAC) and initial public offering (IPO)-related investments, seed funding, corporate venture capital investment, and non-dilutive financing.

Although several quantum companies, such as Infleqion, Xanadu, IonQ, and D-Wave, have recently pursued SPAC mergers or equity financing, the broader SPAC market has struggled. Over half of SPACs that completed IPOs in 2021 have been liquidated, while another 11.7 percent remain in search of merger targets more than three years post-IPO. Those that went public have significantly underperformed the market average. This suggests that speculative private capital alone cannot sufficiently support long-term deep tech development.

Companies are heavily influenced by market sentiment after going public, causing stock prices to fluctuate significantly regardless of whether significant technological progress has been made. The drastic up and down stock price reaction to Nvidia's CEO Jensen Huang's remarks on quantum computing is a prime example. Valuations far exceeding actual revenue performance demonstrate that investors seek not only technological advancement but also tangible customer traction and market pull.

The lack of private capital investment in the quantum sector due to risk aversion could stall the creation of robust quantum supply chains, delay advancements in quantum technologies, and increase costs, which in turn further discourages investment.

Government as a Wise Buyer

Federal agencies should commit to sending demand signals to the quantum industry. Increased federal investment would help assuage private investors' fears and attract the levels of investment needed to scale the quantum industry.

The government should serve as a guaranteed purchaser to create predictable demand and drive private investment and commercialization. Operation Warp Speed provides a blueprint where the U.S. government signed advanced market commitments to buy 455 million vaccine doses at a specified price before clinical trials were completed. These commitments created clarity and certainty that allowed private companies to invest in parallel production capacity, supply chain development, and distribution logistics at unprecedented speed.

In the quantum computing field, Defense Advanced Research Projects Agency (DARPA)'s Quantum Benchmarking Initiative (QBI) aims to verify and validate if any quantum computing approach can achieve utility-scale operation-meaning its computational value exceeds its cost-by the year 2033. QBI holds significant importance for assessing multiple architectures-superconducting, trapped ions, neutral atoms, photonic, and silicon spin-to determine the most reliable approach. The program verifies the returns and impact of private venture capital and corporate self-funding in each quantum R&D, and strengthens technical credibility and encourages further private investment.

Currently, QBI provides funding for companies that show promising approaches to commercializing quantum technologies, with a maximum of $315 million over up to four and a half years:

• Stage A: 6 months, Up to $1 million, Concept
• Stage B: 12 months, Up to $15 million, Research and Development Plan
• Stage C: Up to 36 months, Up to $300 million, Verify and Validate
  

One advantage of technical evaluations like QBI is that they involve multiple government agencies, including national laboratories, enabling experts to accumulate knowledge and giving them access to companies' cutting-edge technologies under DARPA's short timeline. Cooperation between the federal government, state governments, and the end-user industry can help advance regional adoption of these technologies. For example, new QBI field sites in Illinois, Maryland, and New Mexico aim to illuminate the regional impacts of quantum innovation ecosystems on economic development.

Despite DARPA's generous QBI funding, selection in the program does not guarantee companies a solid customer base or purchase commitments, and the funding amounts provided in each stage are insufficient for companies' R&D needs. The majority of companies still rely on private investment, procurement from foreign governments, and a limited number of private customers to fund their quantum R&D budgets. QBI, therefore, should be viewed not as the final destination of evaluation, but rather as the entry point to strategic procurement.

The federal government should institutionalize a more robust system for investing in the quantum sector, with QBI as a cornerstone. Federal agencies can prioritize contracting for future product and service purchases with companies that meet certain performance and reliability standards through QBI.

Simultaneously, the government should establish contractual mechanisms that require companies to transition to the commercial market within a specified timeframe to incentivize faster commercialization and create a clear exit from R&D.

There are several areas where the U.S. government can use multi-year procurement to help send demand signals to support the quantum industry.

• Procurement of Quantum Sensors for Defense, Health, and Intelligence Agencies
  
  Globally, 80 percent of investments in quantum R&D are concentrated in quantum computing, while investment in quantum sensors remains a small minority. Quantum computing remains the primary source of value creation, so its higher investment ratio is reasonable. While sensing technology holds potential, the market size and industrial ripple effects of individual use cases remain limited. In addition, there is limited CVC investment in quantum sensing by Big Tech, which focuses more on quantum computing.
  
  However, McKinsey optimistically projects that quantum sensing could result in a $7-$10 billion market by 2035. Given that advancements in quantum sensing could contribute to economic and national security by helping with resource exploration, medical diagnostics, and navigation, larger investments are warranted.
  
  Quantum and battlefield information dominance (Q-BID) is one of six critical technology areas announced by the Department of Defense (DOD) in November 2025. The DOD is developing quantum technologies, primarily through the Quantum Applications Program, which received $59.5 million in FY 2026 National Defense Authorization Act, and several DARPA programs. Federal initiatives like the Defense Innovation Unit's (DIU) Transition of Quantum Sensing (TQS) program and DARPA's Robust Quantum Sensors (ROQS) program aim to enable navigation and anomaly detection in GPS-denied environments. For applications like these, which have relatively advanced technological maturity, the government should scale existing programs and utilize its legal authority for multi-year procurement to advance fixed-price contracts with milestones set at each stage: prototype, pilot, and mass production.
  
  It is not merely hardware purchases that are needed. Establishing outcome-based performance metrics for procurement, such as improvements in material design or energy optimization to address existing technological challenges, can force companies to converge their efforts around government needs and develop specific applications around mission needs.
  
  In addition, agencies like the Department of Health and Human Services, the Department of Homeland Security, and the U.S. Geological Survey are already piloting quantum sensing technologies. Quantum sensors might cost a premium compared to conventional sensors, but starting to adopt them within government agencies can create demand.
• Procurement of Quantum-Supercomputing Infrastructure
  
  Integration of quantum and HPC is a fast-moving area. The United States maintains classical computing leadership, but faces gaps in quantum-supercomputer deployment compared to international competitors. Operational quantum-supercomputer systems have reached deployment stages in Europe and Japan that U.S. initiatives have not yet achieved in terms of the number of completed or scheduled systems and modality diversity.
  
  The Department of Energy (DOE) should build a quantum-HPC infrastructure network centered around national laboratories and establish a multi-year procurement authority and budget for quantum computing services.
  
  One way that the DOE could do this is by providing offer-to-buy agreements to purchase computational capacity post-completion for the DOE's needs. These arrangements would contribute to infrastructure development by reducing land search and permitting times and leveraging existing research infrastructure and talent.
  
  At the same time, parallel development of multiple architectures should be built into the program structure. Government procurement focused on one specific architecture risk, suppressing other potential technology roadmaps. Unlike the silicon consolidation seen in the 1950s-1960s, diverse technical approaches in quantum technology can be effective depending on their strengths and weaknesses.
• Utilizing Flexible Contract Mechanisms
  
  As it develops frameworks to promote the quantum sector, the U.S. government should maximize the use of flexible contracting tools like the Other Transaction Authority (OTA), rather than relying solely on traditional, rigid Federal Acquisition Regulation rules. OTA enables a phased transition from prototyping to production contracts at the pace of industry, allowing for rapid developments. The Department of Defense is a major user of OTA. Agencies, including the DOE, the DHS, NASA, and the NIH, should also coordinate to actively exercise this authority.
  

Complementary Mechanisms Beyond Strategic Procurement

In addition to being a strategic buyer to support the quantum industry, the U.S. government should establish patient capital programs as well as technical standards and dialogue with end-users to address gaps that procurement alone cannot bridge.

Patient Capital

Government procurements are helping to build pathways for the commercialization of quantum technologies from prototypes to demonstration tests. Capital programs such as loans and loan guarantees offered by the DOD Office of Strategic Capital (OSC)'s Credit Program could provide funding for quantum sensor manufacturing facilities, test facilities, and specialized material supply chains. This program should be expanded, based on demand signals from government agencies such as DIU and DARPA.

In addition, OSC's Critical Technologies Limited Partner Program provides Small Business Administration-guaranteed loans of up to $175 million for approved venture capital funds. Expanding this program could enable lower capital costs for the quantum sensor sector.

Technical Standards and End-User Dialogue

The quantum sector does not need to follow the path of AI. AI's innovative potential is already evident, but excessive expectations like AGI arriving in one to two years have faded. While AI's innovative potential is evident, industry and stakeholders have begun grappling with realities around energy costs, safety, and industrial feasibility. Hype inevitably bursts at some point to capture opportunities, but what remains afterward are only technologies capable of solving realistic challenges.

In the quantum industry, collaboration among diverse stakeholders-including technical experts, industry practitioners, and investors-is essential for commercializing quantum technologies. The federal government can help the quantum industry expand and deepen its engagement through continuous information sharing and the development of technical metrics for various quantum applications, comparing different technological approaches. Lowering entry barriers for dialogue between diverse stakeholders will accelerate the development and market readiness of useful quantum technology applications aligned with real-world needs. This, in turn, will help to guarantee a steady flow of funding into Quantum Information Science and Technology.

One institutional mechanism for helping to promote collaboration among stakeholders is the Quantum Economic Development Consortium (QED-C), sponsored by NIST. The QED-C, established under the 2018 National Quantum Initiative Act (NQIA), is an industry-led public-private partnership with over 200 members, including component manufacturers, software and hardware developers, researchers, and end-users. Agencies such as the NIH, the DOD, the DOE, the DHS, and NASA should expand their dialogue with end-users through the QED-C and actively participate in technology roadmap development and standardization discussions. The federal government can also expand dedicated R&D funding to the QED-C to address specific technological needs identified by member companies.

Under the National Quantum Initiative, procurement agencies can publish their outlook on when, what, and how much to procure in annual progress reports. This would help to enhance the transparency of demand signals for investors and companies, benefiting not only domestic efforts but also coordination with allies.

Conclusion

Research excellence alone will not secure long-term leadership; the federal government must also act as a strategic demand creator capable of accelerating commercialization, reducing investment risk, and guiding technology development toward mission-relevant applications. Through coordinated procurement, flexible contracting tools, patient-capital programs, and deeper engagement with industry and end-users, the government can help transform promising quantum innovations into deployable, economically viable systems and build resilient quantum supply chains and industrial capabilities.

CSIS's Renewing American Innovation program is undertaking a review of the U.S. Quantum Opportunity, as requested by the National Institute of Standards and Technology and in cooperation with the Quantum Economic Development Consortium.

Hideki Tomoshige is a fellow with Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Phillip Singerman is a senior adviser (non-resident) with Renewing American Innovation at CSIS.

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