Quantum computing has received some recent investing interest over the past month thanks to Google's breakthrough in its Willow quantum computing chip. This chip beat a benchmark test that would have taken the fastest supercomputer 10 septillion years (26 trailing zeros!) to complete.
Alphabet (GOOG 1.31%) (GOOGL 1.25%) is a much larger business with investments in quantum computing, not a pure-play investment. However, there are a few pure plays around, and IonQ (IONQ 10.84%) is one of them. With quantum computing picking up steam, is IonQ a must-buy?
Quantum computing is much different from traditional computing methods
First, let's talk about quantum computing (without getting too deep into the weeds). Traditional computing processes information in bits, which only transmits information in a binary manner (1s and 0s). Quantum computing is different. It transmits information in a number between 1 and 0, which gives it infinitely more ways to transmit information than standard computing. However, there's a catch. Because quantum computing doesn't transmit a 1 or a 0, some estimating errors can be involved. This problem has plagued many quantum computers, but Google's Willow chip seemed to have solved this problem based on how it arranges qubits within the chip.
While Google's breakthrough doesn't benefit IonQ, it shows that quantum computing can accurately compute a problem. This has created a lot more interest in the quantum computing space and highlighted some things that IonQ is already doing well.
IonQ is also focusing on the error problem, but last November said it expected to achieve 99.9% native qubit gate fidelity in 2024 and increase that each year after. This shows that IonQ is already near the level Willow has reached, just with less fanfare involved because it's a much smaller company.
Image source: IonQ.
IonQ also has many massive contracts with clients. The largest is its contract with the U.S. Air Force Research Lab, which was a $54.5 million deal that is the largest known quantum computing contract award of 2024. It also has deals on the books with drug researchers and engineering simulation companies. These deals are vital, as IonQ isn't profitable, so it needs outside funding to continue its research and development of quantum computers.
To be honest, much of quantum computing is still speculative, as investors don't know which company will emerge as the winner in the space or how quantum computing will affect the world. But if IonQ is the big winner, there's a lot of money to be made.
IonQ's future is highly speculative
According to IonQ (whose projections should be taken with a grain of salt since they are primed to benefit from quantum computing), quantum computing will have a total addressable market of $65 billion by 2030 and $850 billion by 2040. Those are some lofty projections and probably shouldn't be used for any financial models.
However, billions in revenue would not be out of the picture if IonQ won the quantum computing race and implemented its product. With its current $9.6 billion market cap, IonQ could have room for much more upside if everything goes right.
Still, this is a highly speculative investment, and any money spent buying IonQ shares should be treated as a venture capital investment because such an investment could go to zero if IonQ falls behind others in the quantum computing race. As a result, if investors want to take a position in IonQ, I wouldn't fault them; just make sure it's less than 1% of total portfolio value.
Another item to note is that quantum computing recently became a hot-button topic, which caused IonQ's stock price to rise around 450% since the start of October. This field has seen a lot of interest, so waiting a few months for the hype to cool down may make sense before taking a larger stake.
If you want to take a different approach and invest in quantum computing as a whole, buying a basket of stocks that are playing in this space (which would include IonQ and Alphabet) seems like a smart idea.
Quantum computing has the potential to be a huge breakthrough in the next decade. However, which company succeeds and when it does is highly speculative, meaning the investment risk is much higher than that of your average stock.
