Quantum computing may change how you think of computers someday. The technology promises to solve problems a digital computer simply can't handle, while also speeding up very slow computing tasks. In theory, quantum computers should be great at finding patterns in unstructured data, which comes in handy for many real-world uses. The technology may turn many industries upside down and inside out, including healthcare research, financial services, and cryptocurrencies.
But that's a long-term promise. Quantum computers are bulky and expensive so far, and their number-crunching powers are not terribly impressive yet. Most of the proposed use cases and algorithms for this new class of computing hardware require hundreds, thousands, or millions of so-called qubits (readable quantum entanglements) before they can outperform old-school digital machines.
Researchers have cracked the 1,000-qubit barrier but those experimental systems rely on expensive superconductors and come with problematic rates of data error. Today's top hardware for commercial use only have a couple of dozen qubits.
IonQ (IONQ +5.43%) is an early leader in quantum computing systems. The company recently shipped its first international order, followed by a $54.5 million research contract with the U.S. Air Force. But those achievements already happened, and investors are more interested in what's next.
So, what role will IonQ play in the quantum computing market 3 years from now? Is this the best quantum computing stock to buy today?
Let's make an educated guess.
NYSE: IONQ
Key Data Points
Why you should pay attention to IonQ
There's a lot to like about IonQ today. Here's a small sample of investor-friendly events:
- The company has exceeded Wall Street's bottom-line expectations in the last two quarters. The streak of positive revenue surprises stretches all the way back to the spring of 2023. In other words, IonQ investors are getting used to solid earnings reports.
- Research and development is the lifeblood of the quantum computing industry right now, and IonQ makes heavy investments in that crucial function. R&D budgets rose 57% year-over-year in the second quarter, amounting to 52% of the total operating expenses.
- The expensive research is bearing fruit, too. IonQ has achieved 99.9% accuracy in a two-qubit system, paving the way to a 99.999% target by the end of 2025. The company also hopes to build commercial-grade systems with 100 qubits or more at that point.
That crucial R&D commitment isn't cheap
But IonQ isn't perfect. Here are a few of the issues that discourage me from buying its stock today:
- That R&D budget also works out to 274% of IonQ's revenue in the same quarter. It reported a net loss of $37.6 million in the second quarter, based on $11.4 million of top-line revenues in the same period.
- The company raised $573 million when it joined the public market in 2021, merging with a special purpose acquisition company (SPAC). It had $370 million of cash equivalents three years later, having burned through one-third of its cash reserves at an accelerating rate. How long will it take before IonQ has to sign debt papers or run a large stock sale to keep the lights on in the laboratories?
IONQ Free Cash Flow data by YCharts
- I'm talking about an early leader in the commercialization of quantum computing, but it's far from the only name in the business. IonQ is up against deep-pocketed competition, led by tech giants IBM (IBM +2.06%), Alphabet (GOOG 0.15%) (GOOGL 0.57%), and Microsoft. Outperforming that brutal lineup won't be easy, and any of them might simply acquire IonQ if the company becomes too successful.
Where IonQ could stand in 2027
The way I see it, IonQ could be either a big winner or a cash-strapped underdog in three years. It might also have become a small subsidiary of a much larger company, perhaps giving early investors a generous buyout premium.
I might need an advanced quantum computer to figure out the odds of each possible scenario. Until those systems become stable, commonplace, and affordable, I might as well flip a three-sided coin or roll some dice to make that investment decision.
And that's why I don't own IonQ stock yet -- it's more of a gamble than an investment at this point.
For now, I'm happy to watch the quantum computing space from a premium seat on the sidelines, sponsored by my holdings in IBM and Alphabet. These giants are at least as likely as IonQ to dominate this newfangled industry in the long run, and they're already giants of other fields today. I'll keep a close eye on IonQ's progress, but it's too risky for my taste right now.
