How High Can IonQ Stock Go?

Quantum computing company IonQ (NYSE:IONQ) was among 2023’s best-performing tech stocks. With shares up nearly 260 percent in the last 12 months, IonQ is riding a wave of investor enthusiasm for next-generation technologies.

As 2024 kicks off, both current shareholders and those eyeing IonQ must decide whether the stock’s run will continue or lose steam.

Does IonQ Have a Fundamental Advantage in Quantum Computing?

IonQ’s quantum computing technology is based on ionized ytterbium atoms trapped within a 3-dimensional space and held stable by an electromagnetic field. The company’s use of stabilized atoms is significantly different from other quantum systems, which typically use man-made materials to mimic the quantum properties of individual atoms.

This approach, IonQ claims, has two main advantages. The first is the fact that the company’s quantum bits, or qubits, are more scalable than those produced using other quantum computing methods. Secondly, the fact that the atoms are chained in the same electromagnetic field allows them to communicate without the use of physical wires. This reduces computational noise, a major challenge for stable quantum computing.

The question is whether this technological edge really translates to a competitive advantage for the company. To date, IonQ claims to have created a 79-qubit chain using its ionized ytterbium qubits. This is well below the current record for the largest quantum computer, a 1,180-qubit machine developed by Atom Computing. Tech giant IBM has also achieved well over 400 qubits, calling into question whether IonQ’s technology will prove sufficient to unseat larger, more established names in the quantum computing space.

IonQ Financials Are Starting To Improve

In Q3, IonQ reported revenue of $6.1 million and bookings of $26.3 million. Q4 revenues are projected to be roughly similar, with management’s projected range being $5.3 to $6.1 million for the quarter.

The reported revenue for Q3 represented a massive spike over the year-ago quarter, in which IonQ brought in just $2.8 million. The company’s cost of revenue rose at a roughly similar pace, increasing from $733,000 a year ago to $2.0 million in Q3.

IonQ lost $0.22 per share in Q3, a significantly worse result than the $0.12 per share loss in the year-ago quarter. For the nine months ending on September 30th, it had lost $0.57 per share, compared to just $0.15 the year prior.

IonQ is also still posting deeply negative margins that could deter investors. Over the last 12 months, the company’s net margin has been -681 percent, while return on equity has been -23 percent. Losses for the period totaled $48.5 million.

Although the quantum computing firm has a very short performance history, it’s worth noting that it has consistently underperformed management’s stated expectations. For the full year of 2023, for example, management initially expected total sales of about $34 million. As of the Q3 report, that number had been pared back to $22 million.

The company has also consistently missed earnings estimates, suggesting that its losses could get deeper before they begin to improve.

What could negate some of IonQ’s downsides, however, is its incredibly long potential runway for growth. Over the coming 12 months, analysts expected IonQ’s revenues to rise by over 160 percent.

High revenue growth could continue for quite some time, given the fact that the quantum computing market as a whole is expected to average a growth rate of over 30 percent through 2030.

Is IonQ Fairly Valued?

In addition to shaky fundamentals, IonQ also appears to be significantly overvalued. The stock trades at 128.5 times sales and 5.1 times book value.

While IonQ carries no long-term debt, the fact that losses outpaced total sales by a 4:1 ratio over the past 12 months calls into question whether the company will be able to avoid debt until it can become profitable.

In spite of the stock’s value multiples, analysts do believe that IonQ will continue to climb. The 12-month price forecasts for IonQ range from $12 to $21 with a median of $16.

At the median price target, IonQ shares would climb a further 29.2 percent from the most recent market price. Interestingly, however, the consensus rating on IonQ is a Hold rather than a Buy.

Will IBM Torpedo IONQ?

Competition from much larger and better-funded companies represents the biggest threat to IonQ. For example, IBM is investing heavily in quantum computing technology. Google is also pursuing its own research into the technology and published a paper demonstrating its system’s ability to outperform even the most powerful supercomputers last year.

Due to its largely speculative nature, IonQ is also susceptible to large price swings that many investors may find difficult to ride out. Over the last 52 weeks, the stock has ranged from a low of $3.41 to a high of $21.60. This extremely high level of volatility makes IonQ a turbulent ride for investors, especially without a cushion of earnings to fall back upon.

Finally, there’s the question of how long it will be until quantum computing becomes a commercially viable technology. Some projections suggest that quantum computing could create an additional $1.3 trillion in value by 2035.

At the moment, however, both the pace of quantum breakthroughs and investment in the technology appears to be plateauing. Given the long road to commercialization of quantum computing, it’s difficult to predict which companies will emerge as winners in the space and how long it could take them to begin generating positive cash flows.

How High Could IonQ Go?

According to analysts, IONQ could rise as high as $16 per share before reaching fair value.

Despite considerable risks, steep losses and significant signs of overvaluation, there seems to be little immediate downward pressure on IonQ shares.

In fact, it’s quite possible that the stock could rise if the company’s revenues continue to grow going into 2024. The Federal Reserve’s plan to cut interest rates in 2024 could also buoy growth stocks, including IonQ.

Assuming a bullish case for IonQ, it seems reasonable to suppose that shares could rise to meet the median analyst price forecast of $16 per share.

Despite the possibility that IonQ shares will continue rising, however, the stock’s apparent overvaluation and volatility likely make it a high risk choice for investors.

Those who bought in at lower prices may want to hold in hopes of realizing further returns, but the price of IonQ shares in today’s market likely disqualifies it for value investors. The speculative nature of this stock makes it deeply uncertain, and investors can likely find better risk-reward ratios elsewhere.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.