IonQ (IONQ +0.94%) has captured the attention of investors looking to play the long game in quantum computing. This nascent market, which is emerging as tech companies invest in entirely new ways of developing computer systems, has a lot of potential to grow. McKinsey estimates that it could be worth $2 trillion a decade from now.
But it's also highly speculative at the moment. Alphabet, another important quantum computing player, recently said that a core benchmark used to test advanced quantum computers "has no known real-world applications."
IonQ's unique approach to developing quantum computers has helped propel the company's share price by more than 300% over the past 12 months. But is the stock a buy right now? Here's why I'm skeptical.
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Quantum computing's true impact is still years away
Let me say upfront that I have no qualms with investing in some speculative ideas. I own shares of Rivian, an electric vehicle maker, even though the electric vehicle market is still finding its footing, and Rivian's success in it is anything but guaranteed.
But one thing that would hold me back from putting money into IonQ right now is that quantum computing is an extremely unproven market. For example, Alphabet just released a new quantum computing chip, Willow, that it says is a big step forward in achieving quantum computing processing with far fewer errors.
Alphabet has been working on quantum computing for years, and Willow is a step forward. But even with the advancements, the company says the practical uses for quantum computing aren't here yet.
You may recall that Nvidia CEO Jensen Huang recently said that the practical uses of quantum computing were still two decades away, in his opinion. If companies in the industry, and those very close to it, say the practical uses of it are still far into the future, they probably are.
NYSE: IONQ
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That doesn't mean starting a position in a quantum computing stock is a bad idea, but betting on a pure play so early in the game may be too risky. I think buying Alphabet, which has plenty of other irons in the tech fire, could be a better way to bet on this space.
IonQ is too expensive
If quantum computing were just a speculative idea and IonQ's shares were cheap, then maybe it would seem more harmless to invest in the stock. Unfortunately, its shares are trading at a hefty premium.
The stock has a price-to-sales ratio of 234, which is expensive by any measure. I know it feels like most stocks are expensive these days, thanks to rapid share price increases among companies in nearly every sector, but that's simply a much higher cost than most investors should be willing to pay.
For one, the company isn't profitable. It had a net loss of $52.5 million in the most recent quarter and will likely take a while to narrow those losses, considering total sales were just $12.4 million. If IonQ were profitable and quantum computing was a proven market, then perhaps its sky-high valuation could be justified. But that's not the case right now.
Better to take a wait-and-see approach
IonQ could prove to be a good long-term investment as the company continues to find new applications for its quantum computing technology. But the best thing to do with expensive stocks in speculative markets is to not get caught up in the hype.
Either choose an investment that can benefit from more than just quantum computing (like Alphabet) or wait for a better time to jump into this market when things have cooled down a bit.
