IONQ, Inc. (NYSE:IONQ) was amongst the tech stocks with the highest returns last year, gaining more than 450% since the beginning of the year to hit a high of $21.60 on September 12. Investors went wild over the rise of next-gen techs like quantum computing, which fueled the record rally.
Adoption and capital spending on quantum computing technologies are increasing fast across end-user industries. The global quantum computing market is expected to grow at a CAGR of 32.7% to reach $5.3 billion by 2029.
Following the impressive run last year, IonQ shares went into somewhat of a free fall, plunging by 40% this year as the news of co-founders stepping down created jitters. So is IonQ still a top stock in the sector? And how high can it go?
Is IonQ a Top Quantum Computing Stock?
Quantum computing has the potential to transform the technology landscape, and IonQ is building solutions based on it to solve the most complex problems.
The company was founded in 2015 and began trading on the New York Stock Exchange in October 2021. It became the first public pure-play quantum computing company, and was brought to market via a SPAC headed by Niccolo deMasi.
The company has come a long way with prominent partnerships and product development. For example, IonQ has partnered with tech giants like Microsoft Corporation (NASDAQ:MSFT) and Amazon Web Services in 2019 to make its quantum computers available via the cloud.
In recent years, the team has built new generations of high-performance quantum hardware. It also added Google Cloud Marketplace to enhance its cloud capabilities along with several other collaborations to boost its business.
In the course of a few years, the company managed to improve and achieve higher performance on a benchmark that is called Algorithmic Qubits (#AQ) with application focus.
At the beginning of this year, IonQ stated that IonQ Forte, its commercially available quantum computer, reached the #AQ 35 level, which was the technical objective for 2024. IonQ Forte has further improved performance since June 2023, when it showed 29 Algorithmic Qubits.
Last year, it achieved a milestone in implementing photonic interconnects, which is the core technology that can enable the company to scale computing and networking between multiple quantum processing units (QPUs).
Moreover, IonQ has partnered with software company Zapata AI to focus on benchmarking generative AI techniques on quantum hardware.
Executives see very high potential in quantum-enhanced generative modeling, which they expect will showcase “a quantum advantage for industrial problems, including drug discovery, optimization, language processing, and predictive analytics.” The partnership is successfully enhancing the quantum framework and already yielding positive results.
While IonQ appears to be going from strength to strength, it competes with giants like Alphabet Inc. (NASDAQ:GOOGL), International Business Machines Corporation (NYSE:IBM), and many other early stage companies, which operate with an approach different from IonQ but could be a direct threat to its market share.
It can’t be overstated that Google and IBM have more financial flexibility and cash flows to support innovation and investments in such research and commercialization.
IonQ Is Light on Revenues, High On Potential
The company’s revenues have been modest with the last fiscal year reporting just $22 million, albeit that was a 98% improvement on an annualized basis. The primary reason for limited revenue is the technology still has not advanced to commercial maturity.
As expected with such light revenues, IonQ is currently losing money and reported a net loss of $157.8 million at the end of 2023 and $48.5 million at the end of 2022. The total deficit was $352.1 million at the end of December 2023. Further losses are forecast in the coming quarters.
The company’s move toward profitability will depend on how quickly it can develop and commercialize quantum systems.
Notably, the company’s position in the market may be improving as new bookings in the last one-year period have shown positive demand traction. The company reported $65.1 million in new bookings for the last year, which is a 166% increase in comparison with the previous year.
Better yet, new bookings exceeded the high end of its guidance range. It now expects bookings between $70 million and $90 million for this year.
Despite not yet having realized revenue levels that can support profitability, the company acquiring customers and investing in more manufacturing capabilities to meet the increasing demand.
It has built its first dedicated quantum computing manufacturing facility in Seattle, which will help expand and increase production. This is particularly interesting given its proximity to Amazon’s headquarters.
More positive news came out when IonQ announced an increase in the footprint of this facility by 50%.
If the company can increase sales while also innovating on the product side, it might find its path to profitability sooner than some skeptics forecast.
Is IonQ a Buy?
The recent downtrend in share price is a result of news that the company’s co-founders, Chris Monroe and Jungsang Kim are stepping down. While Chris Monroe left last year to return to academia, Jungsang Kim followed the same pursuit this year.
Nevertheless, even though the share price has fallen this year, it is still trading at a lofty valuation, with a forward price-to-sales ratio of 37.90x and notably it’s above its original SPAC price, a rarity among the cohort of SPACs.
In spite of the elevated valuation, analysts are of the broad opinion that IonQ will go up significantly in the quarters to come. The upside potential from the current market price for IonQ shares is 121.7%.
It seems that if the team is able to show a clear path to sustainable revenues and profitability, the share price is likely to rise in tandem.
With that said, IonQ remains a volatile, uncertain and speculative investment for most at this time. For those willing to take on a little more risk, the upside may very well be substantial.
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