Quantum computing is something you may have seen in a sci-fi movie. However, the technology has existed since the late 1990s. Today, it's becoming increasingly practical, and companies are rushing to build systems capable of harnessing the power of quantum physics to build computer systems more capable than ever thought possible.
IonQ (IONQ 9.66%) is among the companies trying to bring these remarkable machines to life. Understandably, any company working on cutting-edge technology will garner interest from Wall Street. IonQ's stock is up more than 160% over the past year.
That sounds good, but IonQ might be a riskier stock than some may think. Here's why.
Quantum computing: What's going on?
Quantum technology can create the most powerful computers the world has ever seen. Today's computers function on bits, or tiny binary pieces of data that act like a switch. They are either on or off, or in computer language, a one or a zero. All computer data today is broken down to its simplest form: strings of ones and zeros.
But quantum computing potentially changes how basic computing rules work. Quantum computing uses quantum bits, called qubits. Bits are binary, either at a one or zero. However, qubits can be a one, zero, or anything between. One qubit could be half-zero and half-one, or 20% zero and 80% one.
This flexibility, called superposition, is the potential secret sauce to create these quantum computers that can be significantly more powerful than existing technology. There's a reasonable chance that quantum computing will be vital in developing advanced artificial intelligence and other emerging technologies over the coming decades.
A sea of competition
IonQ isn't alone in the race to develop quantum computing technology. From tech giants like Amazon, IBM, Alphabet, and Microsoft to a range of smaller upstarts, a gaggle of companies is competing in the space.
Of course, IonQ claims its technology is better than the pack. It uses individual atomic ion qubits in an ion trap, which the company says is highly configurable and environmentally stable, allowing it to make faster progress in development.
It's also the only quantum hardware compatible with all three major cloud platforms: Amazon's AWS, Google Cloud, and Microsoft Azure.
More hype than substance right now
Investors should note that the company needs to translate this to commercial success; Q3 revenue was just $6.1 million, a drop in the buck for a company with a market cap of almost $3 billion. It's still very early and, thus, a little harsh to judge revenue today. Analysts see revenue growing to nearly $200 million by late 2026.
The company recently announced a new $25 million contract with the U.S. Air Force for research. Getting government business is always a good thing and opens up the door to future potential agreements. IonQ's management cites an estimate that quantum computing will be a $65 billion market by 2030. There is potential for the company when you look at least five years out.
However, investors should avoid assuming IonQ will dominate and win business over its competitors. Even if IonQ's quantum product is superior, more goes into a company than having the best technology. Until meaningful revenue arrives, investors are taking a leap of faith, naturally making the stock riskier.
Is IonQ stock a buy?
The company's $3 billion market cap on little revenue shows the market is pricing in success that technically has yet to happen. That will always make a stock riskier, because you're buying a story with potential, not concrete financials. Investors have yet to determine what margins or cash flow the company will generate.
It's also tough trying to look years in the future, especially when talking about cutting-edge technology that's still in development. Technical setbacks could slow progress, and IonQ's position among competitors could improve or worsen.
For most, IonQ has too many questions to become a high-priority investment. Consider waiting for more evidence of what the business could look like before risking your money. If you're afraid of missing out, consider buying a little at a time to safeguard yourself from the ups and downs a speculative stock like IonQ can have.
