IonQ (NYSE: IONQ) has taken its investors on a wild ride over the past three years. The quantum computing startup went public by merging with a special purpose acquisition company (SPAC) on October 1, 2021, and its shares opened at $10.60 on the first day. The price rose to $31 the following month, but fell to around $3 in December 2022.
Like many other SPAC-backed startups, IonQ disappointed its investors by missing pre-merger targets and suffering steep losses. The departure of its co-founder and chief scientist and troubling allegations from a prolific short seller raised further red flags.
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But today, IonQ is trading at an all-time high of almost $33. A $10,000 investment at the low point two years ago would be worth about $110,000 today. Let’s take a look at why IonQ bounced back and whether its stock is still worth chasing after that massive rally.
Traditional computers store data in binary bits of zeros and ones. Quantum computers store zeros and ones simultaneously in “qubits” to process more data faster, but those systems are much larger and more expensive than regular servers. Furthermore, quantum computers typically produce more errors than binary computers.
To address these challenges, IonQ is developing a ‘trapped ion’ technology that can reduce the average width of a quantum process unit from a few meters to a few centimeters. This miniaturization process could make quantum computers much smaller, cheaper and more accurate in the future.
IonQ primarily serves large government customers, including the US Air Force Research Lab, and major universities. It sells three main products: the high-end Aria quantum system, the commercially oriented Forte system, and the on-premise Forte Enterprise system. It also offers its own quantum computing power as a cloud-based service for customers who don’t want to install systems on-site.
Companies that go public through traditional IPOs are not allowed to record long-term revenue and profit forecasts in their S-1 filings. However, companies that go public by merging with SPACs are allowed to provide long-term estimates.
As a result, many SPAC-backed companies have overpromised and underdelivered. IonQ was one such company that fell short of pre-merger expectations between 2021 and 2023.
|
Metric |
2021 |
2022 |
2023 |
|---|---|---|---|
|
Pre-merger revenue estimate |
$5 million |
$15 million |
$34 million |
|
Actual turnover |
$3 million |
$11 million |
$22 million |
Data source: IonQ.
That slower-than-expected growth, along with continued losses, questions from short sellers about the potential for miniaturization and the departure of the chief scientist, Dr. Chris Monroe, who had developed the trapped-ion process, scared away its investors. Rising interest rates exacerbated those pressures by driving down vibrant valuations.
Still, three catalysts drove IonQ shares higher over the past year. First, it signed several major deals, including a $54.5 million contract with the US Air Force Research Lab. It also signed an agreement with the South Korean government to cultivate the development of its quantum computing market.
Secondly, it has increased its exposure to the booming AI market by partnering with generative AI specialist Zapata Computing, using Nvidia‘s CUDA-Q platform for quantum computing services, and testing large language models on its own platform. Therefore, IonQ could simultaneously benefit from the growth of the quantum computing and AI markets.
Finally, IonQ has repeatedly tightened its guidelines. By the end of 2023, it expected sales to rise 9% to 21%. But by the end of the third quarter of 2024, it had boosted that guidance to 13%-25% growth. It also recently agreed to acquire Qubitekk, a developer of quantum networking products, to further expand its ecosystem.
From 2023 to 2026, analysts expect revenue to grow at an astonishing compound annual growth rate of 89% to $148 million as the quantum computing market expands. The upcoming launch of its next-generation Tempo quantum computing system in 2025 could attract more partners and customers while calming critics.
IonQ still has a lot of irons in the fire, but it looks incredibly expensive at 168 times this year’s revenue, 84 times 2025 revenue, and 47 times 2026 revenue. It has also increased its number of shares outstanding by about 12 % increased since the SPAC merger.
If IonQ fails to deliver on these sky-high valuations, the stock could easily fall back into the single digits. It might be an interesting play for speculative investors right now, but I wouldn’t buy it unless valuations cool off a bit.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Is IonQ Stock a Buy? was originally published by The Motley Fool
