Microsoft (MSFT +0.17%) made headlines when it recently announced its Majorana 1 quantum computing chip, which utilizes a new state of matter to perform quantum computing tasks. This is a big breakthrough for Microsoft, especially because it thinks it can scale this chip to have 1 million qubits (the quantum computing information storage unit). This is a key threshold as Microsoft estimates how many qubits will be required to perform commercially viable tasks.
This is a clear warning shot across the bow of others in the quantum computing realm, and IonQ (IONQ +0.64%) is no exception. However, was this breakthrough enough for investors to move on from IonQ? Or does it still have a place in investment portfolios?
The market's reaction was tepid
Microsoft announced the Majorana 1 chip on Feb. 19. At the time of writing, IonQ's stock had declined by around 8% since the announcement, while Microsoft's had declined by around 3%. If Wall Street was concerned that IonQ was going to be wiped off the face of the planet by this breakthrough, then IonQ's stock would have sold off by a lot. However, most of the sell-off is centered around tech stocks, so this 8% decline by IonQ's stock is better correlated to a broader sell-off than Microsoft's announcement.
This indicates that IonQ will still be OK despite Microsoft's breakthrough.
NYSE: IONQ
Key Data Points
IonQ continues to ink deal after deal with various clients to further its quantum computing research, whereas Microsoft has kept its research in-house. Part of this has to do with the sheer resources that a tech giant like Microsoft has access to, where IonQ needs external funding to keep its research going.
While Microsoft is working on creating its chip, IonQ is working toward useful results, as that is what its clientele demands. This focus on results rather than building a perfect chip may work out well for IonQ, as its CEO thinks that viable quantum computing is just around the corner.
CEO Peter Chapman said that IonQ's quantum computing systems launching in 2025 and 2026 will deliver near-term business value and that it believes it will have sales of around $1 billion by 2030. That would be a huge milestone, and IonQ could win the quantum computing arms race if it delivers on those projections. For 2024, IonQ recognized revenue of $43.1 million and reported a net loss of $331.6 million.
How to approach an IonQ investment
IonQ is still a very high-risk investment with the potential for high reward. Just because IonQ is inking all of these deals now and building relationships, it doesn't mean these contracts won't be terminated if one of the bigger tech companies launches something far more useful.
As a result, an investment in IonQ should be seen more like a venture capital investment, where there is a high probability of the investment not working out. However, if it does, then it could be a massive winner.
With that in mind, if investors want to take a position in IonQ, it's smart to make sure it's small enough that it won't drastically affect overall returns if it goes to zero. I think investors need to maintain their exposure to many of the largest AI companies (like Microsoft), as these businesses are also investing substantial money in quantum computing capabilities. That way, if a company like Microsoft ends up losing the quantum computing arms race and ditches the program, there is still a viable base business for investors to own. IonQ is an all-or-nothing bet on quantum computing, which is inherently much riskier.
By taking a basket approach and owning several of the largest quantum computing players, investors can spread out the risk among multiple investments and benefit as the quantum computing arms race plays out over the next several years.
