Is IonQ Stock a Buy?

Quantum computing stocks have soared since 2024 as enthusiasm about the artificial intelligence (AI) boom has carried over to emerging technologies like quantum.

While quantum stocks are still generating minimal revenue, they are making material technological advances, and tech luminaries, including Nvidia CEO Jensen Huang, have given credit to the development, saying it could become very useful sooner than he had expected. Alphabet recently announced another milestone, that its quantum algorithm runs 13,000 times faster than a traditional supercomputer.

IonQ (NYSE: IONQ) has emerged as the leading pure-play company in quantum, though the stock has underperformed peers like Quantum Computing Inc. Like other emerging technology stocks, IonQ has pulled back in recent weeks, but is IonQ a buy today? Let's explore what the stock is offering.

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What you need to know about IonQ

There are different scientific methods for making quantum computing work, and IonQ uses a trapped-ion process, removing an electron from a ytterbium (Y) atom to create an ytterbium ion, which eventually becomes a qubit, or a quantum bit.

Unlike most of its pure-play quantum computing peers, IonQ has also begun to deliver material revenue. In the third quarter, its revenue jumped 222% to $39.9 million. The business is still deeply unprofitable with a generally accepted accounting principles (GAAP) operating loss of $168.8 million.

However, numbers aren't the most important point for a business like IonQ as it's still in the proof-of-concept phase, where it needs to demonstrate that its technology is valuable for customers. Revenue growth, especially in the triple-digit range, is a good sign for IonQ.

Among the company's achievements in the third quarter was a new contract with Oak Ridge National Laboratory to develop advanced energy applications and accelerate quantum-computing workflows. Together with a Swiss consortium, IonQ launched the first citywide dedicated quantum network in Geneva, and the company signed a memorandum of understanding with the U.S. Department of Energy to develop quantum technologies in space.

It's also making acquisitions to build out its technology, taking over Oxford Ionics and Vector Atomic in the third quarter, and IonQ achieved a key milestone as part of its goal of developing 2 million qubits and 80,000 logical qubits by 2030.

IonQ also raised its revenue guidance for the full year to a range of $106 million to $110 million, implying $38 million to $42 million in the fourth quarter, which is flat from the third quarter.

A risky investment

Despite IonQ's progress, the stock remains a high-risk investment. IonQ continues to lose money, on track for an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss between $206 million and $216 million. Its GAAP operating results are significantly worse as it reported a $405.1 million operating loss through the first three quarters, and its free cash flow loss for the first three quarters was $208.7 million. The gap between its operating loss reflects more than $200 million in share-based compensation through the first three quarters.

IonQ also has substantial liquidity at the moment with $1.08 billion in cash and short-term investments, and the current enthusiasm around quantum computing should make it easy for the company to raise more money if needed.

However, profitability for IonQ is at least several years away, and the stock remains speculative at a price-to-sales ratio of more than 100. Its market cap is now $16.4 billion, even as the stock has fallen substantially since its peak in October.

If you're looking for exposure to quantum computing technology, IonQ looks like the best option of the pure-play stocks available, but investors should be aware that valuations are still being largely inflated by hype. IonQ's share price could fall a lot lower even if it continues to make progress toward its goals.

Jeremy Bowman 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.