Shares of quantum computing pure-play stock IonQ (IONQ +0.09%) continue to buck trends and outperform other stocks that went public in 2021 via a special purpose acquisition company (SPAC). The stock is up a whopping 270% so far in 2023, though it is still off nearly 40% from highs reached this past summer.
With the business growing at a brisk pace and excitement about quantum computing building, is it still time to buy the dip?
NYSE: IONQ
Key Data Points
IonQ is a start-up with all sorts of possibilities
IonQ stock was highly volatile in recent months, driven by a bit of internal drama. Following a summer sell-off for small-cap stocks, the company announced in October that its chief science officer Chris Monroe, a co-founder of IonQ in 2015, would be leaving the company to return to a career in quantum computing academics.
For a small start-up trying to develop a brand-new industry, losing talent like this shouldn't be taken lightly. Nevertheless, IonQ has already put in a significant development effort to commercialize its cutting-edge technology, having announced two new quantum computing systems a couple of weeks prior to the announcement that Monroe was leaving.
One of those systems, the IonQ Forte Enterprise, is a type of server that can be installed in existing data centers, and used by top IonQ computing distributors like Amazon Web Services.
Investors overlooked some of these concerns, though, running the stock back up a bit during the November market rally. IonQ seemingly provided validation for this on its third-quarter earnings update, reporting year-over-year revenue growth of 122% to $6.1 million and cumulative customer bookings (an indication of product orders that can be filled in the coming years) now exceeding $100 million.
It would certainly seem that momentum is building for this early leader in the nascent quantum computing industry.
Is IonQ's elevated valuation a legit concern?
Reasons for positivity aside, current and would-be shareholders of IonQ need to acknowledge the elevated valuation right now. This is, despite glowing accolades around revenue growth, merely a start-up company.
Even if IonQ should continue to notch several years of 100%-plus year-over-year growth, revenue will only just begin to match the company's current market cap valuation of $2.66 billion (as of Dec. 5). Even the very imperfect price-to-sales ratio is meaningless here, currently sticking a wild premium of over 130 times IonQ's trailing-12-month revenue.
Suffice it to say, that many years' worth of growth is already priced in. And that's not accounting for profit margins, which are deep in the red with a generally accepted accounting principles (GAAP) net loss of $44.8 million in the third quarter alone under GAAP. That works out to an adjusted $22.4 million loss according to earnings before interest, taxes, depreciation, and amortization (EBITDA).
Quantum computing is indeed promising. It can open up previously unimaginable frontiers of human understanding of the universe. But widespread commercialization is still many years down the road. A misunderstood fact is that quantum computers aren't just undergoing research and development. Researchers also first need to define a large problem to be solved by a quantum computer, a massive task unto itself (which is why classical computing accelerators, like those developed by Nvidia, are being used by quantum researchers).
Simply stated, not only are quantum computers not ready for large-scale deployment, but most businesses and organizations also don't even have a clearly defined use for them just yet.
That's why IonQ's revenue is so small, as most of its customers are researchers (some within the research department of a large business or organization). The company is getting advanced bookings for its quantum computers, but meaningful revenue that pairs sensibly with the current market cap is still years away.
I understand the excitement surrounding a stock like IonQ. The potential is there. But buying the dip right now, especially with a sizable chunk of your hard-earned money, is a speculative bet. Bear that in mind before buying, if you decide to at all.
