One area of artificial intelligence (AI) that's beginning to come into the mainstream is a concept known as quantum computing. While it's still years away from becoming commercially adopted, big tech companies such as Amazon, Alphabet, and Microsoft are all exploring ways to integrate this technology into their AI ecosystems. That said, big tech hasn't fetched much attention in the quantum computing landscape.
Instead, investors appear more interested in emerging opportunities, such as Rigetti Computing, D-Wave Quantum, and IonQ (IONQ 0.80%). Over the last year, shares of IonQ have soared by 130%. Can IonQ stock continue to beat the market? Read on to find out.
NYSE: IONQ
Key Data Points
The rise of IonQ has been impressive
IonQ's website lists a number of high-profile customers and partners, including the likes of Nvidia, Microsoft Azure, Amazon Web Services (AWS), Google Cloud Platform (GCP), Lockheed Martin, and General Dynamics.
This impressive customer roster, combined with rising interest in quantum computing against the backdrop of a bullish AI narrative, sent shares of IonQ parabolic.
While some lucky investors profited handsomely from these jaw-dropping returns, volatility of this magnitude can be risky. Instead of chasing momentum in the hopes of buying in before the next wave, let's take a hard look at IonQ's financial profile to assess whether this price action is even warranted.
Image source: Getty Images.
IonQ is burning heaps of cash
You'd think working with major cloud hyperscalers, such as Microsoft, Alphabet, or Amazon, would lead to some impressive growth prospects for IonQ. However, as of now, the company's underlying financial picture is pretty uninspiring. The table below summarizes IonQ's revenue and earnings over the last few years:
| Category | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| Revenue, in millions | $2.1 | $11.1 | $22.0 | $43.1 |
| Net income / (Loss), in millions | ($106.2) | ($48.5) | ($157.8) | ($331.6) |
| Adjusted EBITDA, in millions | ($28.4) | ($48.7) | ($77.7) | ($107.2) |
Data source: Investor Relations. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Although IonQ has managed to double its revenue each year since 2022, the company's net income burn has risen almost sevenfold, and EBITDA (earnings before interest, taxes, depreciation, and amortization) losses have more than doubled during that same period. Per the company's latest financial guidance, management is forecasting further adjusted EBITDA losses of $120 million for this year.
My prediction for IonQ stock one year from now
Given IonQ's consistent and growing burn rate over the last several years, it's not too surprising to see the company's cash balance diminishing.
IONQ Cash and Short Term Investments (Quarterly) data by YCharts.
Developing quantum computing services requires considerable investment in infrastructure and engineering talent. As the trends above show, IonQ's revenue growth isn't growing at a fast enough clip to account for the company's expense profile. Furthermore, management's anticipation of even more losses this year signals to me that it's going to be quite some time before IonQ is generating positive unit economics and can actually reinvest cash flow back into the business.
Bearing all that in mind, I think liquidity will become an issue for IonQ sooner rather than later. My prediction is that the company may choose to raise funds at its current inflated valuation before the stock possibly sells off too much. If such an event happens, share dilution could cause some investors to lose enthusiasm or simply realize that IonQ's actual business results are disconnected from the share price appreciation.
For these reasons, I think IonQ stock will be trading at a considerably lower valuation one year from now than it is today. If you're an investor curious about quantum computing, I'd encourage you to own big tech stocks, such as Amazon, Alphabet, or Microsoft, over speculative high-flyers like IonQ.
