At first glance, the stock of IonQ (IONQ -5.72%) appears to hold the potential to turn small investors into millionaires. For now, it is a comparatively small company that seems to have a competitive advantage in quantum computing. This emerging industry could process data exponentially faster than traditional computers and solve problems that today's technology cannot.
However, IonQ is not the only quantum computing stock. Thus, investors must determine both its possible competitive edges and also figure out whether it can succeed financially.
The IonQ growth runway
There's potential for massive growth since its research could redefine computing as we know it. Today, software development hinges on binary bits, or defining data in terms of zeros and ones.
In contrast, quantum computers use quantum bits, commonly known as qubits, that can process zeroes and ones simultaneously. This speeds processing times exponentially, which should dramatically increase the capabilities of computers.
Also, IonQ has continued to improve its technology. Early this year, its Forte Enterprise system reached #AQ 35, meaning it could process 34 billion scenarios simultaneously, significantly faster than its 2023 release.
Next year, it plans to release the IonQ Tempo #AQ 64, a technology it describes as its "Chat GPT moment." If all goes as planned, it will be able to consider 18 quintillion possibilities simultaneously!
Moreover, these successes have culminated in a recent $55 million contract with the U.S. Air Force Research Lab (AFRL). That was the bulk of the $64 million in bookings it achieved during 2024, increasing hopes that IonQ will not remain a low-revenue company.
And with a 140% gain in the stock price over the last year, its market cap is around $7.2 billion. This is a low enough level that it would take a 500-fold gain to surpass chip giant Nvidia in market value.
Ongoing challenges
Unfortunately for IonQ, a 500-fold gain is a tall order considering that mega caps make up much of its direct competition. Tech heavyweights such as IBM, Alphabet, Microsoft, and Nvidia are also working in this space.
Moreover, such peers can fund their own research. This is not the case with IonQ. It held about $366 million in liquidity as of the end of the third quarter of 2024, and it will likely need most of that money just to stay in business.
In the first nine months of 2024, the company earned only about $31 million in revenue, while it logged about $186 million in operating expenses. Even with additional revenue sources, it lost about $130 million in that time frame.
Furthermore, when factoring in this year's stock price growth, IonQ's price-to-sales ratio (P/S) is almost 190. Even if the price-to-book-value ratio is a better measurement for the low-revenue company, trading at 17 times book value still makes this stock quite expensive.
Will IonQ make investors millionaires?
Given the current state of IonQ and the quantum computing industry, investors should not expect to become millionaires with a relatively small investment.
Indeed, IonQ could theoretically turn small shareholders into millionaires if it figures out how to out-innovate its mega-cap competitors. Unfortunately, with costs and expenses running about six times its revenue for the year, it has to devote much of its funding to covering losses.
Also, even if it somehow emerged as an innovation leader, its size and financial condition would make it a likely buyout target for a large tech company. Small investors could still earn gains, but they are unlikely to become millionaires in such a scenario. Hence, investors should probably look to other stocks besides IonQ if they seek exponentially higher gains.
