The lightning-hot market rally driven by artificial intelligence (AI) has spilled over into the quantum space. Investors hunting for the "next big thing" are piling in.
IonQ (IONQ +2.75%) is no exception. The company's stock surged 71% in the last month, outpacing gains by rivals Rigetti Computing, with 59%, and D-Wave, with 65%.
And now that shares are trading around $68, some investors are wondering what's next. Can IonQ stock hit $100?
NYSE: IONQ
Key Data Points
IonQ is executing
IonQ is the most successful, commercially speaking, among its quantum computing peers. The company, whose approach to solving the quantum problem involves trapping atoms with high-powered lasers, has sales an order of magnitude larger than those of most of its competitors.
First-quarter revenue grew 750% year over year, reaching $68 million, after IonQ landed several lucrative defense department contracts. It's also managed to grow its cash reserves to more than $2 billion, giving it a substantial runway at current burn rates.
And the company has made a series of major acquisitions recently, including a $1.8 billion purchase of SkyWater, a semiconductor fabrication company. The deal gives IonQ control over its own chip manufacturing and moves it closer to full vertical integration.
There are risks
The company is still burning through roughly $80 million in free cash flow per quarter, and the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) loss is actually growing. IonQ lost more than $200 million last quarter compared to less than $80 million a year prior.
Image source: Getty Images.
And you can't talk quantum without talking about extreme valuations. While nowhere near as wild as its rivals, IonQ stock still trades at a price-to-sales ratio (P/S) of about 118. That is pricing in some serious growth.
Can IonQ keep gaining?
So, do I think IonQ stock can hit $100? I do.
But I don't think it will stay there. IonQ has the most financial bona fides of any quantum pure-play, but it is still a speculative investment. I believe that when the current bull market corrects -- and it will -- companies that trade at extreme multiples like this will get hit hard.
Quantum computing may well prove to be a revolutionary technology, but it will be many years before it does, and I think we are likely to see a sustained quantum winter. There will be a much better time to jump in when the market is pricing these companies rationally.
