The last three months have been quite eventful for quantum computing stocks, with some of the sharpest ups and downs investors will ever see.
It started when Alphabet's Google announced a major quantum breakthrough with its Willow chip. The Dec. 9 announcement revealed that the Willow chip allows quantum computers to self-correct errors better than ever -- a major milestone on Google's quantum computing roadmap.
Quantum computing stocks soared on this announcement. It seemed like the future had arrived. But Nvidia's Jensen Huang and Meta Platforms' Mark Zuckerberg threw cold water on the party. According to these two tech CEOs, "very useful" quantum computers are more than a decade away. In fact, Huang thinks it could be 15 to 30 years.
Quantum computing stocks crashed after these comments. And with so many conflicting opinions floating around out there, Peter Chapman is planting his own flag in the sand. Chapman is the CEO of quantum computing company IonQ (IONQ 2.23%) and he's setting concrete goals for its timeline.
IonQ's quantum value timeline
Due to the novel way that quantum computers work, they're exponentially more powerful than classical computers, in theory. If this is true, then it's surprising that people such as Jensen Huang and Mark Zuckerberg are saying that quantum computers won't be very useful for at least the next 10 years.
NYSE: IONQ
Key Data Points
As it turns out, the usefulness of quantum computers is limited today because ongoing error rates are still too high. To be clear, error rates are improving. There are also error-correcting algorithms that are used to make adjustments. Moreover, Google's Willow chip is a breakthrough in this area. But there's still limited functionality due to error rates.
Investors consequently want to know how long before quantum computers' time has come. IonQ's Chapman put together a timeline of his own. By 2030, the CEO believes his company will generate close to $1 billion in revenue and will also be profitable.
Chapman is calling for astronomical growth. IonQ expects to generate around $40 million in 2024 revenue. If it generates $1 billion in 2030 revenue, that would represent a greater-than-70% compound annual growth rate (CAGR) from now until then.
For perspective, Nvidia is one of the greatest growth stocks ever and it only achieved a CAGR closer to 60% over the last five years. In other words, IonQ is calling for a superior growth rate. Granted, IonQ is starting from a far smaller revenue base, making growth much easier than it is for Nvidia. But this timeline should absolutely grab investors' attention nonetheless.
How compelling is this investment opportunity?
Let's tap the brakes before getting overly excited. In my opinion, IonQ's quantum value timeline shows how far the technology could progress while simultaneously showing just how far away it will still be six years from now.
Circling back to the Willow chip announcement, Google itself has laid out six milestones that need to be reached before there are "meaningful applications" of quantum computing technology. The Willow chip shows progress in its milestone for error correction. But Google admits it still has further to go. And then it still needs additional breakthroughs with the quantum gates that control the qubits in the first place.
IonQ's $1 billion revenue goal is impressive. But once the technology is hitting its full potential the market should be much larger than this, making $1 billion relatively small by comparison. This suggests that the more meaningful industry growth (from a dollar perspective) will come after 2030.
When it comes to IonQ stock, it's expensive to climb aboard the train for 2030. The company already has a market cap of $8.5 billion, as of this writing. This means the stock is valued at 8.5 times its potential sales six years from now. For perspective, some investors believe 8.5 times sales is too expensive for trailing 12-month sales. Paying that much for 2030 sales is quite steep.
Moreover, that steep price is what investors will pay if IonQ hits its 2030 goals. But investors shouldn't forget that Chapman was CEO when IonQ went public in 2021. At the time, management called for 2024 revenue of $60 million and a loss of $67 million for earnings before interest, taxes, depreciation, and amortization (EBITDA). But through the first three quarters of 2024, it already has an adjusted EBITDA loss of $74 million and it only expects full-year revenue of about $40 million, putting it well off the pace from the guidance it gave in 2021.
In other words, take IonQ's 2030 timeline with a grain of salt because it's come up short of past timelines.
In my opinion, IonQ's business is poised for sensational growth but the stock is still a risky bet today. For many investors, the best course of action will likely be to wait, allowing the quantum computing industry to pass more milestones before picking stocks in the space.
