Science fiction is slowly turning into science fact. At least, that's what it looks like when we have self-driving cars, humanoid robots, and now quantum computers emerging into the limelight. Researchers predict that quantum computing will create $850 billion in economic value by 2040, and investors are scooping up shares of quantum computing stocks like they're going out of style. IonQ (IONQ 7.74%) is up over 300% in the last 12 months as of this writing, making huge gains for shareholders.
Is now the time to hop on the IonQ train and ride the quantum computing revolution? The answer is more complicated than you think.
Big quantum computing promises
We can easily understand why society would value self-driving cars or humanoid robots. They take work previously done by humans and offload it to machines, allowing people to have more leisure time. But why would we want quantum computers?
A simple answer: They promise unprecedented speeds in advanced computations. Traditional semiconductor-based supercomputers can take hours or even days to finish calculations in advanced mathematics, artificial intelligence (AI), or simulations. Quantum computers use quantum mechanics to do these calculations in just a few seconds, potentially saving time and money in the process. This could provide an immense value to society and revolutionize the entire computer industry, from personal devices to the cloud.
It sounds great, but working out the kinks in this technology has proven remarkably difficult. That is where researchers like IonQ step in. The company is slowly building quantum computers for commercialization and selling supplies to other research teams to help work on their own quantum research. It has even started selling its quantum computing services over the public cloud providers, although there are still a lot of errors to fix with the technology.
If IonQ can win the race to quantum computing supremacy and commercialize the technology, there is a ton of promise for this business. This is why investors have bid up the stock to new heights and its current market cap of $8.6 billion.
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An innovative business, but with troubled financials
Since it's an early stage start-up trying to build a new technology in public markets, IonQ does not have the prettiest financials. It generated just $7.6 million in revenue last quarter and lost $75.7 million. The company's operating loss has gotten worse for many years now and will likely continue to worsen as it pours more research into quantum computing.
On the bright side, IonQ does have $700 million in cash on the balance sheet through various capital raises. This money was not free for shareholders and did lead to major share dilution, with shares outstanding up 29% in the last couple of years. At the current burn rate, IonQ only has a few years left to get to profitability, and it does not look like quantum computers will be commercialized for at least another five years, if not longer. There is a lot of uncertainty in investing in cutting-edge technology when we don't even know if it will ever work. This presents a big risk for IonQ.
IONQ Shares Outstanding data by YCharts.
The hard truth about quantum computing stocks
Quantum computing stocks can feel exciting. But these are simply not the type of stocks that make money for an investor's portfolio. Hyped-up technologies come and go in public markets. In the last two decades we've had clean energy, 3D printing, cannabis (not a technology, but inspired by legalization), electric vehicles, and now quantum computing stocks, just to name a few. Some of these innovative things have produced real-world results for companies and consumers. Most of the stocks have done terribly for investors.
Building a new technology in public is difficult and comes with high risks. IonQ and the other quantum computing stocks are losing a boatload of money, and have minimal sales and large market caps. This is a recipe for poor stock performance over the long haul. Despite it doing so well in the last 12 months, I think IonQ stock is one investors should stay far away from right now. New technologies can be interesting, but they rarely make for good stocks.
