IonQ (NYSE:IONQ) is one of the leading startups racing to commercialize quantum computing. Like many other quantum-focused stocks, IONQ shares have soared in the last year.
On a trailing 12-month basis, IonQ has delivered returns of nearly 800 percent, and many bulls still believe that there’s room left for further gains.
Today, let’s take a look at whether IonQ has become overvalued after its massive run or if the stock could still be worth investing in at today’s elevated prices.
IonQ Is Trading at 17x Book
By most standards, IONQ shares currently trade at an extremely high valuation. The stock is priced at almost 300 times its trailing 12-month sales and about 17.2 times its book value, both massive multiples that will demand extremely high growth rates from IonQ to justify.
Adding to the signs of overvaluation is the fact that IonQ has seen its shares skyrocket to these heights without generating any positive earnings or cash flows.
It’s worth noting, however, that analyst price targets seem to support nearly all of IonQ’s current valuation. The consensus target price of $64.63 is only about 4 percent below the most recent closing price of $67.28.
IONQ also has a fairly strong buy rating with 5 analysts rating it as a buy, 2 rating it as a hold and no standing sell ratings. With all of that said, it also bears mentioning that the range of price targets for IONQ is quite broad, ranging from a low of $32 to a high of $100.
Is IonQ Growing Fast?
Given its extreme valuation metrics, the market is pricing in massive growth ahead for IonQ. This begs the question of how well IonQ is growing at the moment. In Q2, IonQ reported $20.7 million in revenue, an amount that was not only an improvement of more than 80 percent compared to the year-ago quarter but also 15 percent above the top end of management’s quarterly guidance.
Looking forward to the rest of the year, IonQ expects to see full-year revenues of between $82 million and $100 million.
With that said, substantial increases in revenue haven’t translated to lower or even stable net losses for IonQ. Q2’s net loss totaled $177.5 million, more than four times the loss of $37.6 million IonQ reported in Q2 of 2024.
Though it’s far from unusual for a high-tech startup like IonQ to lose substantial amounts of money early on, this expansion of losses over the last year could be somewhat concerning for shareholders.
How Long Will it Take IonQ to Reach Its Potential?
One of the most hotly debated factors about IonQ and other quantum computing startups is how long it will be before the technology reaches commercial viability.
Opinions differ wildly, with some predictions anticipating fault-tolerant quantum computers as soon as 2030 and others expecting that practical quantum computers could still be a decade or more away. This makes it difficult for investors to adequately predict when startups like IonQ could really begin to take off in terms of revenue.
IonQ’s CEO Peter Chapman, however, has publicly stated his own views about the business’s trajectory. Early this year, Chapman outlined a goal of achieving around $1 billion in annual sales by 2030.
This is also the timeline, according to Chapman, on which IonQ will achieve net profitability. It’s worth noting, however, that this could be an optimistic view given the very real questions about how quickly quantum computing technology will progress.
What Makes IonQ Different?
Although there are many unknowns about IonQ that could introduce extra risks to an already highly valued stock, it’s also important to recognize that the business could have a unique edge in the quantum computing space.
The trapped ion technology IonQ specializes in offers several advantages over other types of quantum computing, particularly in terms of coherence and error correction. Utilizing this technology, IonQ could be at an early advantage in the race to make quantum computing practical for commercial applications.
Just as importantly, IonQ is positioning itself as the default player in the quantum software space. IonQ has created what it calls Qiskit, an open-source quantum software development kit that uses the common Python programming language.
By introducing its tools as a standard for quantum software development, IonQ could eventually gain a market advantage analogous to the edge NVIDIA has achieved in AI hardware with its CUDA tools.
Is IonQ Stock Overvalued?
Although IonQ may have some real promise as a play on quantum computing technology, it’s difficult to ignore just how high the stock’s price has gotten. Furthermore, even by management’s own optimistic outlook, it could be years before IonQ comes anywhere close to justifying the valuation the market has assigned to its stock. As an example, using Chapman’s vision of $1 billion in revenue in 2030, the business is still valued at approximately 20 times its expected sales in five years’ time.
Another consideration for investors looking at IonQ is management’s habit of diluting its shares. At the end of Q2, there were over 250 million shares of IonQ outstanding. That represented an increase of about 18.5 percent compared to the end of the year-ago quarter.
With such a long timeline at play before positive earnings could materialize, it’s worth considering the extent to which the stock could be diluted over multiple years and how that could affect share prices in the interim.
So, while IonQ may have an appealing market position in the emerging field of quantum computing, the stock is likely overvalued and may not appeal to most value-oriented investors at the moment.
This is especially true with a timeline for IonQ’s profitability proving to be longer than expected or should IonQ find it necessary to sell additional shares to raise capital while it’s still losing money.
With positive earnings roughly five years away under even the optimistic assumptions presented by management, IonQ seems to be priced with what amounts to a best-case scenario in mind.
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.