The success of IonQ (IONQ +2.49%) stock highlights an area of technological innovation that arguably receives too little coverage: quantum computing. Given the promise of this technology, the young, Maryland-based company has been drawing interest from investors. However, growth potential doesn't always translate into gains for an emerging company such as IonQ. Plus, the departure of co-founder Chris Monroe has brought some uncertainty.
Given the company's current state, could investors still enjoy stellar returns from this quantum computing stock, or are they too late?
NYSE: IONQ
Key Data Points
About IonQ
Monroe and Jungsang Kim co-founded IonQ in 2015 to bring quantum computing from academia into the marketplace. The technology leverages the power of quantum physics to exponentially increase the speed of computing power. Under current technology, bits store units of information that are either a zero or a one. Consequently, computers must perform a new calculation whenever a bit of information changes.
According to management consulting company McKinsey, quantum computing can simultaneously store zeroes and ones within each information bit. This allows the computer to explore more paths in a given period, a factor that can exponentially increase computing power.
Companies such as Google parent Alphabet have partnered with IonQ to enhance its quantum computing technology. Other tech giants, such as Microsoft and IBM, have also developed quantum computers. Fortune Business Insights believes this industry will grow at a compound annual rate of 32% through 2030. Hence, one can certainly understand the interest.
Does technology prowess translate into success?
Admittedly, Monroe's departure -- announced last month -- may not be the disaster that some anticipate. Kim remains with the company. The head of research and development, Pat Tang, previously served in technology roles at Apple and Amazon. And the current CEO, Peter Chapman, has extensive leadership in software engineering. With such a team, the engineering side of the business can still inspire investor confidence.
Instead, the company's worries seem to center on finances. For the first three quarters of 2023, revenue of $16 million rose 118% compared with the same period in 2022. But since its costs and expenses are over 7 times its revenue, the net loss for the nine-month period was $116 million, well above $30 million in the year-ago time frame.
Such a difference between revenue and expenses is a critical concern. Analysts predict 87% revenue growth for 2023, which, while robust, is still a slowdown. And even if the company meets the expectation for 83% revenue growth in 2024, expenses will almost certainly continue to surpass revenue by a wide margin.
IonQ holds around $384 million in liquidity. That funding gives the company time to improve its finances and may partially explain why the stock is up by almost 250% this year. Still, a price-to-sales (P/S) ratio of approximately 120 makes the stock outrageously expensive by any measure. Knowing that, investors may understandably hesitate to bid the stock price higher under the best of circumstances.
Are investors too late?
Given IonQ's current conditions, investors are probably too late to capitalize on this stock. The aforementioned valuation dramatically reduces the chances of the stock rising further in the near term.
Additionally, even if the stock price falls back down to Earth, investors may not care whether or not they are too late. Although revenue should grow at a rapid pace, it will probably take years to reach profitability under the best of circumstances. Until it can address these financial concerns, investors should probably avoid the stock.
