When it comes to shopping around for ultra-high-return investments, it's best to remember that the greater the reward, the greater the risk. And for really high-payoff picks, the odds of losing money can often be at least as good as the odds of making some. If you've got room in your portfolio for the right risky idea, though, there's nothing wrong with taking a bit of a risk -- as long as you manage it by sizing your position appropriately.
With that as the backdrop, if you can stomach it, quantum computing name IonQ (IONQ -7.15%) arguably has the potential to return 200% or more within the next few years. Here's why.
What's IonQ, and why should you care?
In case you aren't familiar with it, IonQ is working on a whole new kind of supercomputer. Whereas the sort of computing platform you're familiar with (and using right now) operates using a high-speed interplay of digital ones and zeros, quantum computing is a far more powerful (and complicated) approach transcending the limitations of the typical binary system. Using subatomic particles as the basis for making calculations, a quantum computer needs only minutes to perform a task that would take a conventional computer years -- if not centuries -- to complete.
As you might imagine, this relatively new science isn't exactly practical or commonplace yet. Not only is still being perfected, its still-high cost makes it unsuitable for widespread use.
Commercial customers are coming around, though. IonQ did $43 million worth of business last year, nearly doubling 2023's top line. It has revenue-bearing partnerships with SK Telecom, the U.S. Air Force Research Lab, General Dynamics, and, soon, artificial intelligence (AI) powerhouse Nvidia, just to name a few.
Image source: Getty Images.
What are these partners hoping to accomplish with these ultrafast computing platforms? The sky's the limit, really. Quantum computing has implications for cybersecurity, drug development, the creation of new kinds of materials, manufacturing optimization, and even financial modeling.
Ultimately, though, all of these applications involve some form of AI. The use of subatomic particles (typically referred to as "qubits") completely sidesteps AI's biggest current bottleneck: limited computing capacity related to binary systems. With quantum computing platforms, the number of simultaneous calculations that can be performed is theoretically infinite, leading to exponentially more computing capacity.
The bullish thesis on IonQ
So what makes a company like IonQ worth investing in?
There's a handful of arguments to be made here, but first things first.
IonQ isn't the only name in the quantum computing business. It's also far from being the biggest and best-funded. Alphabet and Microsoft, for instance, have also developed their own impressive quantum platforms, seemingly posing a threat to $5 billion IonQ.
This little company has a big edge, though. That's the fact that it was one of the first to the market with a purpose-built product that makes clear sense for paying customers to use. While Alphabet and Microsoft can obviously invest more in their quantum development, IonQ is a well-established and increasingly proven player in this small sliver of the technology arena. And being first can be just as important as being best.
Interested investors must also understand that the business is at a tipping point, on the verge of explosive growth that could widen IonQ's current lead on bigger rivals. Market research outfit Precedence Research believes the worldwide quantum computing market is set to grow at an average annual pace of 31% through 2034, with the fastest growth expected to happen around the end of this decade and the beginning of the next one. That's relatively soon -- perhaps too soon for other players to catch up with IonQ.
A recovery is brewing, sooner or later, for IonQ
But if this stock is so promising, why is it trading down by more than 55% from December's high?
NYSE: IONQ
Key Data Points
This is one of those occasional cases in which the market latches on to headlines and some compelling investor presentations, becoming far too enthusiastic. The recent pullback isn't an indictment of the company's likely future. It's a right-sizing of an overheated rally from late last year.
Perhaps the most bullish argument to be made here, however, is that the analyst community hasn't been swayed by any of the recent volatility. The vast majority of the few analysts covering this company consider it a strong buy, and they sport a 12-month consensus price target of $44.60. That's about twice the stock's present price ($22.88). In light of forecasts for triple-digit growth this year and next, though, IonQ shares could readily double in price and then do so again over the coming three years, creating a 200% gain.
Data source: StockAnalysis.com. Chart by author.
The kicker is the swing to a profit expected for 2027, although it's only projected to be a small one. As veteran investors can attest, sometimes just making progress toward that fiscal turning point is enough to drive a stock higher.
A risk that might make sense
Crazier bets have certainly paid off. If there's a small slot for a high-risk holding in your portfolio, this is an interesting idea, if only because the sell-off since December's peak is unnecessarily exaggerated. It's also arguably the best of only a handful of quantum computing "pure plays" right now.
