IonQ (IONQ +18.82%) and Snowflake (SNOW +6.21%) represent two very different ways to invest in the booming cloud services market. IonQ serves up its quantum computing power as a cloud-based service, while Snowflake uses its cloud-based data warehouses to collect and organize data for large organizations.
With an enterprise value (EV) of $2 billion, IonQ is still a lot smaller than Snowflake, which has an EV of $58 billion. IonQ also hasn't attracted as much attention as Snowflake, which made history as the biggest software IPO ever upon its public debut in September 2020. But over the long term, could this smaller cloud stock become just as important as Snowflake?
Image source: Getty Images.
A pure play on quantum computing
Traditional computers process data with binary "bits" of zeros and ones, but quantum computers can process zeros and ones simultaneously with "qubits." That makes quantum computers a lot faster than traditional computers, but they're also larger, more expensive, and more susceptible to making mistakes, as they prioritize speed over accuracy.
IonQ aims to disrupt that market with its "trapped ion" technology, which shrinks qubit processing unit (QPU) systems from several feet to just a few inches. It claims that miniaturization will enable it to produce the world's most powerful quantum computers, significantly lower the cost of quantum processing, and reduce the likelihood of errors.
IonQ gauges its quantum computing power in algorithmic qubits (AQ). It reached AQ 29 last year, and plans to reach AQ 35 this year and AQ 64 in 2025. By 2028, it claims it can achieve AQ 1,024 -- which would represent a compound annual growth rate (CAGR) of 133% in its total computing power over the next four years -- as it scales up its systems.
NYSE: IONQ
Key Data Points
Can IonQ disrupt the quantum computing market?
IonQ's technology sounds like a revolutionary way to profit from the expansion of the quantum computing market, which is forecast to grow at a CAGR of 36% from 2023 to 2032, according to Acumen Research and Consulting.
However, IonQ hasn't generated much revenue so far, it's deeply unprofitable, and its stock looks incredibly expensive. For 2023, analysts expect it to generate just $22 million in revenue, with a net loss of $156 million. For 2024, they expect it to generate $39 million in revenue, with an even wider net loss of $173 million.
So with an EV of $2 billion, IonQ trades at 89 times its 2023 sales and 50 times its 2024 sales. By comparison, Snowflake trades at 21 times its sales for fiscal 2024 (which ends this month) and 16 times its projected sales for fiscal 2025.
That valuation suggests a lot of optimism is already baked into its stock price, but IonQ still faces troubling questions about its future. Last October, co-founder and chief scientist Chris Monroe -- who developed the company's trapped ion technology -- abruptly stepped down to resume a research position at Duke University. That departure came just a few months after the prolific short seller Scorpion Capital accused IonQ of exaggerating its miniaturization capabilities and secretly using third-party quantum computers from Honeywell to handle its cloud-based processing.
IonQ also fell short of the growth targets it had set before it merged with a special purpose acquisition company (SPAC) in October 2021. At the time, it claimed it could generate $237 million in revenue by 2025 -- which is well above analysts' current estimates of $88 million. Those overly bullish forecasts, which sparked a class action lawsuit against the company last year, cast some dark clouds over its ambitious plans for the future.
IonQ isn't the next Snowflake
For now, IonQ is still a highly speculative company that has a lot to prove. That makes it a lot riskier than Snowflake, which already served 647 of the Forbes Global 2000 customers with its cloud-based data warehouses in its latest quarter. IonQ's miniaturization technology also faces a murky future, while Snowflake's warehousing technology is already widely used to gather and clean up large amounts of data.
That's probably why Snowflake's IPO attracted a lot of support from Warren Buffett's Berkshire Hathaway and Salesforce -- while IonQ chose to quietly go public by merging with a SPAC. If IonQ can actually scale up its business and narrow its losses, it might just establish a first-mover's advantage in the nascent quantum computing market. But for now, IonQ shouldn't be considered the "next Snowflake" or even a reliable long-term play on the expansion of the cloud market.
