Quantum computing stocks were one of the hottest commodities in the stock market up until a few weeks ago. The market decided it had assumed enough risk with these stocks and has started to rotate out of them. While this may be frustrating for those who bought at the top, is the sell-off a prime opportunity for investors who missed the initial quantum computing run?
One of the top pure-play quantum computing stocks is IonQ (IONQ +1.82%). Its stock hasn't sold off as much as its peers, mainly due to its leadership position. Currently, it sports a market cap of about $16 billion, but could it be worth $1 trillion someday if it achieves quantum computing supremacy?
Image source: Getty Images.
IonQ's technology is setting it apart from its peers
The primary reason why every tech giant hasn't adopted quantum computing is that it isn't accurate enough. Quantum computers are currently prone to calculation errors, which are unacceptable in a practical setting. Every company involved in the quantum computing arms race is attempting to develop the most accurate solution possible, and IonQ is no different.
What sets IonQ apart from its peers is its trapped ion approach, which is inherently more accurate (and cheaper to operate) than another popular alternative, superconducting. Superconducting requires cooling a particle down to near absolute zero to utilize its quantum mechanics for calculations, while the trapped ion technique can be done at room temperature. Furthermore, the trapped ion approach has inherent accuracy advantages, making it the most accurate solution available.
NYSE: IONQ
Key Data Points
Most quantum computing competitors are still trying to achieve 99.9% two-qubit gate fidelity, a measure of how accurate a calculation is after passing through two operations. That's about one error for every 1,000 processes. With modern traditional computers processing millions of items rapidly, these errors can stack up. IonQ is far more advanced than its peers, with its most recent achievement being 99.99% two-qubit gate fidelity -- a world record. That's one error in 10,000 operations, which is a significant improvement despite moving the needle only 0.01%.
IonQ's solution could gain an early adoption due to its superior accuracy, potentially allowing it to become the sole winner in the quantum computing space. But is that enough for it to become a $1 trillion company?
The quantum computing market isn't as large as many investors think
Finding estimates on the future quantum computing market isn't easy, as it's still several years out. While there are some projections, most of them are just guesses, and nobody will bat an eye if they're wildly off. McKinsey & Company estimates that the cumulative market for quantum computing will total about $72 billion by 2035. So the annual value will be much smaller than that. But even if we think big and assume that the annual value of the quantum computing market would be $72 billion by 2035 and IonQ delivers a 30% profit margin with a 30 times earnings multiple, that's only a $648 billion stock.
That number is well below the threshold of the $1 trillion we're hoping for, and it could only be reached by making projections that no company is making. That's a real problem, and it shows that the quantum computing market is likely to be a lot smaller than most investors think.
As a result, I think investors should be patient before buying IonQ stock. I think it's likely to be a leader in the industry for years to come due to its leading trapped ion technology, but the reality is it's still a long-shot company that hasn't proven it can make commercially viable quantum computing equipment. The sell-off of quantum computing stocks will likely continue, and there will be better opportunities to invest in IonQ stock at a later date.
