When investors discuss the artificial intelligence (AI) market, they often focus on GPU makers like Nvidia, generative AI software developers like OpenAI, AI-driven cloud giants like Microsoft, and data center and networking chipmakers like Broadcom. Yet those investors will often overlook the potential AI tailwinds for the budding quantum computing market.
Quantum computers can process binary bits of zeros and ones simultaneously, while traditional computers process those bits individually. That difference enables quantum computers to process larger quantities of data at a much faster rate, but they're still bigger and more expensive, and generate a higher rate of errors than traditional computers. That's why they're still not as widely used to process AI applications as high-end data center GPUs.
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But over the next few years, quantum computing companies plan to miniaturize their chips, reduce their error rates, and make them cheaper to manufacture. They're also providing more of their quantum computing power as cloud-based services. Those improvements could make them much more useful for demanding AI applications.
Two quantum computing companies that might benefit from that trend are IonQ (IONQ 10.84%) and Rigetti Computing (RGTI -4.90%). Let's see which of these early movers might be a better investment.
The differences and similarities between IonQ and Rigetti
IonQ sells three types of quantum computing systems: Its top-tier Aria quantum system, its commercial-oriented Forte system, and its on-premise Forte Enterprise system. It also provides its quantum computing power as a cloud-based service. It mainly sells its products and services to big government customers and universities.
It's also been developing a "trapped ion" technology that could potentially shrink the width of a quantum processing unit (QPU) from a few feet to a few inches. That miniaturization process could pave the way toward the development of cheaper and more powerful quantum computing systems in the future.
However, those efforts suffered a setback when its co-founder and chief scientist Chris Monroe -- who had pioneered the trapped ion process -- unexpectedly stepped down last year. Yet IonQ continued to grow after Monroe's departure by installing more systems, signing new government contracts, and securing new AI partnerships.
Rigetti designs and manufactures its own QPUs, and it lets developers write their own quantum algorithms on its Forest cloud platform. That one-stop shop model makes it a "full stack" quantum computing company.
Like IonQ, Rigetti also aims to develop cheaper and more scalable QPUs for commercial customers. But Chad Rigetti, who founded the company in 2013, stepped down as its president, CEO, and director in December 2022. That abrupt departure was alarming, but Rigetti subsequently allayed those fears with two major product launches.
Last December, Rigetti launched its Novera QPU, a 9-qubit commercial version of its own quantum computer, which costs $900,000. Several major government and research customers have already ordered those QPUs. It also recently deployed its first 84-qubit Ankaa-3 system, which is designed to detect more than 99% of its processing errors, and it plans to deploy a more powerful 100-qubit system with an even higher error detection rate this year.
Which company has a brighter future?
IonQ and Rigetti both went public by merging with special purpose acquisition companies (SPACs), and they missed their rosy pre-merger estimates. IonQ only generated $22 million in revenue in 2023, compared to its original target of $34 million. Rigetti generated just $12 million in revenue in 2023, which also broadly missed its original guidance of $34 million.
Yet both stocks hit their all-time highs in December 2024 as the bulls applauded their recent progress. From 2023 to 2026, analysts expect IonQ's revenue to grow at a compound annual growth rate (CAGR) of 89% to $148 million, and for Rigetti's revenue to increase at a CAGR of 43% to $35 million.
Both companies are expected to stay unprofitable for the foreseeable future. IonQ and Rigetti could also keep diluting their own shares to raise cash and cover their stock-based compensation expenses. IonQ has only increased its share count by 10% since its SPAC merger, while Rigetti has boosted its share count by 69% since its debut.
Both stocks are richly valued. With an enterprise value of $8.8 billion, IonQ already trades at 59 times its estimated sales for 2026. Rigetti's enterprise value of $4.3 billion is equivalent to a whopping 123 times its projected sales for 2026.
The better buy: IonQ
The quantum computing market could still expand at a CAGR of 34.8% from 2024 to 2032, according to Fortune Business Insights, with smaller chips and more efficient error detection rates. IonQ and Rigetti could benefit from that secular expansion, but investors should be mindful of their soaring valuations. I wouldn't rush to buy either of these speculative stocks, but IonQ's superior scale, higher growth rates, milder dilution, and lower valuation clearly make it a better buy than Rigetti right now.
