Nvidia (NVDA -2.85%) is arguably the face of the artificial intelligence (AI) industry. The stock has generated enormous investment returns because the company's AI accelerator chips became the overwhelming leader in an emerging market that has shown explosive growth over the past several years.
In the search for the next emerging market, some are pointing to quantum computing as technology's next great frontier. It's still quite early, but the analysts are already speculating that quantum computers could be exponentially more powerful than modern computers, unlocking the full potential of AI and other industries, and creating new ones.
The CEO of IonQ (IONQ -6.50%), a company developing quantum computers, recently said the company hopes to become the Nvidia of this technology sector. It's a bold assertion, considering Nvidia's massive success, and IonQ stock jumped higher on the news.
Is IonQ for real, or are the CEO's words more hot air than substance? Let's look at whether you should buy the stock now.
Image source: Getty Images.
Digging deeper into what IonQ's CEO said
In an interview with Barron's, IonQ CEO Niccolo de Masi said the company wants to become the Nvidia of quantum computing. Essentially, de Masi likened IonQ to Nvidia because he believes the company has a technology or performance edge that will enable it to build a quantum computing ecosystem that captures the market, much like Nvidia did in AI with its graphics processing unit (GPU) accelerator chips and CUDA software.
If he's right, IonQ could be a tremendous investment. Research by Boston Consulting Group estimates that the market opportunity for quantum computing hardware and software providers could grow to $90 billion to $170 billion by 2040. IonQ's market cap is currently just $11.8 billion.
IonQ has built a few quantum computers. It has partnered with cloud companies like Amazon, Microsoft, and Alphabet to offer customers access. Over the past four quarters, IonQ has generated $43 million in revenue.
However, it's still very early. Quantum computers must operate in a highly controlled environment and are still prone to computing errors that make them somewhat impractical for real-world work. There is also little software or support beyond research applications. Industry experts widely believe that quantum computers, useful enough for real-world applications, are still several years away, perhaps five years or more.
Why de Masi's Nvidia comparison is flawed
CEO Niccolo de Masi could be correct about IonQ's positioning to dominate quantum computing, but I disagree. AI models demanded immense computing power. Nvidia captured the AI chip market for two primary reasons:
- Nvidia's GPU-based chips were a natural fit because they already excelled at efficiently performing high workloads.
- The hyperscalers building out AI infrastructure are competing with one another. They decided that moving quickly is more important than messing around with alternatives, even if it costs more.
Like AI models and applications, quantum computing will likely operate through the cloud. That's probably why all the cloud computing companies are developing quantum computers, too. IonQ's cloud partners will eventually become the competition.
Even if IonQ does have the best quantum technology today, the battle will be won over the next decade and beyond, not this year or even next year. Cloud companies will likely shut IonQ out once they can implement their quantum computers into their cloud platform.
IonQ can win a piece of the market, but it seems unlikely to dominate it like Nvidia in AI accelerator chips.
Should you buy IonQ now?
It isn't easy to justify buying a nearly $12 billion market cap stock when the business it represents generates only $43 million in revenue. Yes, you're investing in the future, but it's a murky future with many potential pitfalls.
The same research from Boston Consulting Group estimates the market opportunity will be just $1 billion to $2 billion before 2030. If that were accurate and IonQ captured the entire opportunity -- an unrealistic outcome -- the stock trades at six to 12 times revenue it won't generate for five years.
None of this discussion can even begin to speculate on IonQ's profit margins or when the business might turn a profit.
The stock can make sense as a long-term bet and a small component of a diversified portfolio, but only at the right price. There isn't much supporting its $11.8 billion market cap, so now is not the time to buy.
IonQ stock has traded under $7 per share within the past year, which shows how volatile these risky stocks can be. Investors should wait for the stock to fall a ways before circling back.
