Artificial intelligence (AI) has gotten most of the stock market hype over the past year, but quantum computing burst onto the scene in a big way in 2024. IonQ (IONQ 10.84%) is one of the companies developing quantum computing for commercial applications, which could unlock new levels of innovation in ways that are difficult to comprehend.
Just how big a leap is quantum computing? Alphabet (parent company of Google) recently announced that its quantum chip could solve a calculation in under five minutes that today's fastest supercomputers would need 10 septillion years to solve. That's 10,000,000,000,000,000,000,000,000 years!
IonQ's shares have risen 237% over the past year due to its developments and market excitement as quantum computing inches closer to reality.
Should investors buy the stock? Or is IonQ more hype than substance?
Quantum computing has the power to create new markets
It's hard to wrap your mind around something going from 10 septillion years to five minutes, but that's the leap quantum computing represents.
Existing computers represent systems of binary switches called bits. Bits are either a one or a zero at any given time. At its core, all computer information is simply a series of ones and zeros. Quantum computing is a new technology based on quantum mechanics that operates using qubits. Qubits differ from bits in that they can be a one, zero, or a combination of both at any time.
Simply put, qubits can do many things simultaneously, while bits can only do one thing at a time. Therefore, qubits can do more things faster. Increasing qubits exponentially increases the computing power. IonQ's Forte quantum computer has 36 algorithmic qubits, and management believes its technology will surpass 1,000 qubits by 2028.
Image source: IonQ.
Quantum computing is so powerful that some think it could eventually crack cryptocurrency encryptions. IonQ believes its addressable market will grow to $65 billion by 2030. There are opportunities for quantum computing across many industries, from machine learning to drug discovery. Someday, quantum computing could be the new norm and unlock technologies nobody believed possible.
IonQ is still in its (very) early innings
This story is just getting started. IonQ has sold access to its Forte computer since 2022 but generated just $37 million in revenue over the past four quarters. The company recently began shipping its 36-qubit Forte Enterprise computer to customers and hopes to launch Tempo, a computer targeting 64 qubits, this year.
Analysts estimate IonQ will generate $102 million in revenue in 2025 and $357 million in 2027. That's impressive growth percentage-wise, but it's a relatively small number compared to IonQ's current $9 billion market cap. Plus, IonQ isn't the only company developing quantum computing. A long list of start-ups and established technology companies, including IBM and the three largest cloud companies (Alphabet, Microsoft, and Amazon), are working on quantum computers.
The addressable market could be $65 billion in 2030, but it's unclear how much IonQ will capture. IonQ will compete with some deep-pocketed companies with powerful influence across the enterprise technology space.
Is the stock a buy?
That's nothing against IonQ, its technology, or doubts that it will successfully bring its quantum computers to market.
Buying IonQ or any stock involves weighing the risk versus the reward. At a $9 billion market cap, there seems to be quite a bit of risk in IonQ. Even if IonQ generates $357 million in revenue in 2027, that's still a price-to-sales (P/S) ratio of 25 times 2027 estimates. Investors still don't know how accurate that estimate will be, what profit margins IonQ will have, or where the company will rank among competitors.
These factors can impact the valuation you might pay for a stock, especially when the company has yet to generate meaningful revenue.
You may have seen this coming, but it's hard to recommend buying the stock today. There are too many unknowns, and the stock has run too high. If you like IonQ as a speculative stock, consider waiting for a pullback before buying it. Stocks like this tend to be volatile, so you may get better buying opportunities when the market dips again.
