The quantum computing craze has supercharged IonQ (IONQ +11.58%) stock in the past year or so, with shares of the company gaining more than 500% since September 2024. This rapid rise in IonQ stock is being driven by sunny prospects for the quantum computing market, as well as the impressive growth that the company has been clocking.
What's worth noting is that the quantum computing market is still in its early phases of growth. Does this mean buying and holding shares of IonQ could turn out to be a life-changing investment? Could this stock set you up for life? Let's find out.
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The quantum computing market is expected to grow at an incredible pace
Quantum computing is becoming popular thanks to its disruptive ability to solve complex calculations at a much faster pace than traditional computers. To put it simply, quantum computing analyzes multiple situations simultaneously and runs an algorithm on all of them at once, using the laws of quantum mechanics. This makes it faster than traditional computing, which often requires many parallel computations.
McKinsey & Company estimates that the global quantum computing market could generate up to $72 billion in revenue in 2035, up from an estimated $4 billion last year. This would translate into a compound annual growth rate (CAGR) of 30%. So, it is easy to see why quantum computing start-ups are getting a lot of attention from venture capitalists, private equity firms, and investors.
Investments in quantum computing start-ups jumped by 50% in 2024 to $2 billion, according to McKinsey. That figure is likely to move higher in the long run as this disruptive technology gains momentum. Not surprisingly, investors have been buying quantum computing stocks such as IonQ hand over fist, which explains the massive surge in the company's stock price in recent months.
NYSE: IONQ
Key Data Points
Moreover, an initial look at IonQ's growth suggests that it is on track to capitalize on the massive opportunity available in the quantum computing space. The company builds and sells quantum computers, and also offers customers access to its quantum computers through the cloud computing services offered by Amazon, Microsoft, and Alphabet.
The company released its third-quarter results on Nov. 5, and it reported a terrific year-over-year jump of 222% in revenue to $40 million. IonQ exceeded its revenue guidance by 37%. The important thing to note here is that the company was sitting on $1.5 billion worth of cash and cash equivalents last quarter. However, it needs to raise more money to run its operations, which is why it went for a $2 billion equity offering last month.
As a result, it is now sitting on an impressive $3.5 billion in cash on a pro forma basis. Investors should note that the equity offerings are leading to share dilution, but it is easy to see why the company needs more money. Quantum computers are expensive, so IonQ needs to invest substantially to make more of them.
Their high costs can be attributed to their error rates, which require the integration of an error-correction system. Moreover, quantum computers are sensitive to their environment and can be disrupted by changes in temperature or vibrations. IonQ is focused on improving the fidelity of its systems (in a bid to enhance accuracy), which is why the company is spending big on acquisitions to bolster its technology.
So, can IonQ set you up for life?
Putting all your money into one stock and expecting it to make you rich isn't a smart strategy. Of course, the quantum computing market is expected to grow impressively in the long run, and IonQ seems to be making the most of it. But the technology isn't yet mature, and IonQ's growth seems largely driven by acquisitions.
That strategy is having a negative impact on the bottom line. Moreover, analysts are expecting a slowdown in the company's growth rate, following an estimated increase of 150% in its top line this year to $108 million.
IONQ Revenue Estimates for Current Fiscal Year data by YCharts
IonQ looks like a risky bet since it is trading at an expensive 153 times sales. Investors with a high risk appetite may be tempted to initiate a small position in this quantum computing stock since it is operating in a disruptive industry. But doing so will only make sense if IonQ is bought as part of a diversified portfolio, since its expensive valuation and the nascent industry it serves open the possibility of risk and downside in the long run. I don't think IonQ will set you up for life.
