IonQ (IONQ +18.14%) has been a divisive stock ever since it went public by merging with a special purpose acquisition company (SPAC) on Oct. 1, 2021. The bulls saw it as a promising play on the nascent quantum computing market, while the bears saw an overvalued company that was barely generating any revenues.
IonQ's stock opened at $10.60 after its merger and nearly tripled to its all-time high of $31 on Nov. 17. But today, the stock trades at about $8. Like many other speculative tech stocks, IonQ lost its luster as rising rates highlighted its losses and compressed its valuations. It also broadly missed its own pre-merger estimates.
Image source: Getty Images.
That was a disappointing outcome for the bulls, but could IonQ's market cap still rise from $1.8 billion today to $1 trillion by 2050? Let's take a closer look at IonQ's growth potential, the bullish and bearish arguments, and its valuations to decide.
What does IonQ do?
IonQ provides quantum computing services. Unlike traditional computers, which process data through binary bits of zeros and ones, quantum computers store zeros and ones simultaneously in "qubits" to process more data at faster rates. However, quantum processing units (QPUs) are also bigger, more expensive, and consume a lot more power than traditional CPUs. They're also prone to making more mistakes than binary computers.
Many larger tech companies like IBM provide quantum computing services as minor extensions of their larger cloud-based ecosystems, but IonQ calls itself a "pure play" on the quantum computing market.
NYSE: IONQ
Key Data Points
IonQ doles out its quantum computing power as a cloud-based service on Amazon Web Services (AWS), Microsoft Azure, and other public cloud infrastructure platforms. That flexibility makes it easily accessible for organizations that want to make quantum calculations without installing any on-site hardware.
The company is trying to differentiate itself from its competitors with its "trapped ion" technology, which it claims can miniaturize the width of a QPU from several feet to just a few inches. That miniaturization could make it much easier and cheaper to build large quantum computing systems that can process large amounts of data with fewer errors.
The bears vs. the bulls
The bears aren't impressed by IonQ's claims. They'll note that Chris Monroe, its co-founder and chief scientist who was developing its trapped ion technology, abruptly resigned last October. Just a few months before Monroe's departure, a prolific short seller had accused IonQ of exaggerating its own miniaturization capabilities and computing power, and alleged it was actually running its services on Honeywell's QPUs instead of its own chips.
The bears will tell you that IonQ's preferred growth metric of "algorithmic qubits" (AQ) is a proprietary one that isn't widely recognized by other companies. Some critics, including IonQ's competitor Quantinuum, even claim the AQ metric is a flawed calculation that masks some crucial gate complication and error mitigation problems. Lastly, they'll show you this table, which compares IonQ's pre-merger estimates to its actual growth rates.
|
Metric |
2023 |
2022 |
2021 |
|---|---|---|---|
|
Estimated revenue |
$34 million |
$15 million |
$5 million |
|
Actual revenue |
$22 million |
$11 million |
$3 million |
Data source: IonQ.
For 2024, IonQ expects its revenue to rise 64% - 86% to $37 - $41 million. That growth rate is impressive, but the stock is already valued at 45 times the midpoint of that forecast. That lofty valuation, along with its lack of profits, could limit its gains.
The bulls argue that IonQ is just getting started, it's gaining more U.S. military and enterprise customers, and it expects to increase its total computing power from AQ 36 this January to AQ 64 by 2025. Furthermore, analysts still expect its revenue to rise at a stunning compound annual growth rate (CAGR) of 91% from 2023 to 2026 -- so it could eventually grow into its valuations as it proves the bears wrong.
But could it become a trillion-dollar stock by 2050?
Assuming its price-to-sales ratio holds steady, IonQ would need to generate $22 billion in revenue by 2050 to become a $1 trillion company. That would require it to grow at a CAGR of 29% from 2023 to 2050. It would be extremely difficult to maintain that high growth rate for nearly three decades. The quantum computing market could still grow at a CAGR of 32% from 2023 to 2030, according to Fortune Business Insights, but its momentum could also fade over the following two decades.
If IonQ grows at a lower CAGR of 20% from 2023 to 2050, its annual revenue could reach $3 billion by the final year. If it's still trading at 45 times sales, it would be worth $135 billion. With a more realistic price-to-sales ratio of 10, it would be worth about $30 billion -- which would still represent a near-17-bagger gain from its current price.
IonQ is still a speculative investment, and investors should closely review the bear and bull cases before pulling the trigger. It could soar a lot higher -- but it could also be cut in half before that happens. And a trillion-dollar target doesn't look realistic.
