Why I Wouldn't Touch IonQ, Even With Quantum Computing Stocks Soaring

Quantum computing stocks have been one of the hottest trades in recent years. Emerging leaders IonQ (NYSE: IONQ), Rigetti Computing, and D-Wave Quantum are up between 20% and 50% from their April lows. Look out even further, and this trio has soared between 480% and 1,710% over the past two years. While IonQ is growing at blazing speeds, it's too hot for me to handle.

Here's why I'm not ready to buy this top quantum computing stock.

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There's a lot to like about IonQ

I want to start by saying I'm genuinely intrigued by IonQ. The quantum computing company isn't all hype. It reported record revenues of more than $80 million in the second quarter, up an astonishing 287% year over year, driven by deployment across its entire quantum platform. That was its fifth straight quarter of delivering record results and the best quarter in its history.

That rapid growth should continue. IonQ recently raised its full-year guidance to between $280 million and $290 million. That doesn't reflect any contribution from its recent acquisition of SkyWater Technologies, which is creating the first vertically integrated, full-stack quantum platform.

Why IonQ is too hot for me to handle

Despite its massive revenue growth, IonQ is a long way from reaching profitability. Its total operating costs and expenses exceeded $417 million in the second quarter, more than five times its revenue. It has incurred a cumulative loss of $608.8 million from operations through the first six months of this year. While the company currently has a strong cash position ($2 billion after closing the SkyWater deal), it's burning through cash rather quickly. As a result, it will probably need to raise additional capital, which would dilute existing investors.

My other concern with IonQ is its valuation. The quantum computing company currently has a nearly $17 billion market cap following the more than 480% jump in its stock price over the past two years. That puts its valuation at over 55 times forward sales. While its revenue is growing rapidly, its valuation is rich. Stocks trading at lofty valuations tend to be very volatile, which has been the case with IonQ. The quantum computing stock has been down as much as 40% and up as much as 60% at various points this year.

This quantum computing stock isn't right for me

IonQ is seeing real demand for its growing quantum platform, which it's expanding through acquisitions like SkyWater. It should continue to grow rapidly in the coming years as demand for this emerging technology increases. That has translated to a rich valuation for IonQ, which has become very volatile. It's also losing a lot of money. That makes it too risky for me. While I wouldn't touch IonQ right now, I would consider investing in a quantum computing ETF to gain exposure to this exciting sector while I wait for IonQ's losses to narrow and valuation to come down.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.