Investors looking to establish an early position in the quantum computing field may find themselves drawn to IonQ (IONQ 0.71%) stock. Academics in the field established the company to build quantum computers, and if successful, that company might have tremendous potential to earn considerable returns for its shareholders.
Still, IonQ's potential as a multibagger will depend on many factors. Thus, prospective investors should take a closer look at the quantum computing stock's business and its financials to determine whether it could become a potential winner for investors.
What is quantum computing?
The company began when professors Chris Monroe and Jungsang Kim founded IonQ in 2015, hoping to take their quantum computing research from the lab and into the market.
Instead of operating on bits that are either zeroes or ones like traditional computers, quantum bits, or qubits, can hold bits that can reside at any point between those values. That could potentially allow for exponentially faster processing speeds. McKinsey expects the quantum networking industry to grow to the $10 billion to $15 billion range over the next decade.
Unfortunately, qubits are inherently unstable, which can lead to faulty outputs. Thus, quantum computers must also devote resources to error correction to make the technology reliable.
Moreover, many users may question the need for quantum computing, making it a solution without a problem. Thus, the majority of contracts and partnerships revolve around research-oriented institutions such as the Air Force Research Lab, the University of Maryland, and the state of Maryland.
Furthermore, Alphabet, Microsoft, IBM, and others have developed quantum computing technology independently. Since these companies can afford to fund their own research, quantum start-ups like IonQ could find themselves at a competitive disadvantage over time.
IonQ's financials
IonQ has benefited from early successes, building partnerships with Amazon's AWS, Microsoft, and Alphabet's Google Cloud marketplace. These partnerships likely played a part in its revenue growth, as 2024 revenue of $43 million rose 96% from year-ago levels.
Unfortunately for IonQ, revenue did not come close to covering its costs and expenses, which amounted to almost $276 million during the same period. Additionally, the fair value of its warrant liabilities took a huge hit. That played a huge role in the company's 2024 net loss of $332 million, more than double the $158 million net loss in 2023.
Furthermore, IonQ holds only around $320 million in liquidity, meaning it will likely have to turn to debt or stock issuance to stay in business. Additionally, advancements by other companies will almost certainly compel it to invest additional funds into research to remain competitive.
Its results and financial situation may explain some of the stock's behavior over the last year. While its 80% gains over the previous year are impressive, the stock has pulled back by almost two thirds from its highs in January.
On account of its modest revenue, it sells at a price-to-sales (P/S) ratio of more than 90. Also, even when measured against the company's book value, a price-to-book ratio of 11 indicates the stock is not a bargain. Hence, investors should expect to pay a premium for the stock despite its recent pullback.
Is IonQ stock a buy right now?
When one considers the state of the quantum industry and IonQ's financials, its stock is likely not a buy at this time. Breakthroughs in quantum computing could eventually change the nature of computing and generate untold sums in shareholder returns.
Nonetheless, the technology may need to have more obvious applications to draw interest. Also, IonQ could struggle in the face of its heavyweight competition, especially since it sustains heavy losses and could potentially run out of funding in the foreseeable future.
Indeed, quantum computing technology holds tremendous potential for the tech industry and its investors. Unfortunately for IonQ shareholders, the state of the company strongly indicates that it will struggle to capitalize on that potential.
