IonQ: Is It Time to Buy the Stock as Revenue Soars?

IonQ (NYSE: IONQ) has been a volatile stock over the past year, trading as low as $17.88 and as high as $84.64 -- a peak that it hit last month. On Nov. 5, the quantum computing company reported third-quarter results that featured strong revenue growth, and management increased its guidance. But that didn't lift the stock for long. It's now trading in the neighborhood of $50 per share.

With IonQ stock well off its highs, is now the time to buy?

Strong growth off a small base

For those unfamiliar with IonQ, the company is looking to become a leading maker of quantum computers, an emerging technology that works in a fundamentally different way than conventional computers.

The digital devices you use every day store data and manipulate it in bits, which can only have two states: 0 or 1.

Quantum computers use "qubits," which can have values of 1 or 0, but can also exist in a complex linear combination of those states. Frankly, for investors, it's not necessary to get lost in the weeds of probability amplitudes or what "superposition" actually means. The important point is that by taking advantage of the counterintuitive strangeness that is quantum mechanics, these machines can solve certain unusual types of problems that would be impossible for even a classical supercomputer to handle in any useful period of time.

However, the downside is that qubits are incredibly sensitive to outside interference, which makes the technology massively more error-prone than regular computers. That's one of the biggest issues that quantum computing companies like IonQ are trying to solve.

For its part, IonQ is using a specific method called trapped-ion technology, isolating individual charged atoms to act as its qubits. While this approach can initially be more expensive, the qubits it creates tend to be more stable, which results in fewer errors. The technology can also be more scalable, since IonQ can make systems bigger and increase computing power by just adding more qubits.

IonQ's stated goal is to become the Nvidia of quantum computing, and it is investing heavily in and making acquisitions in a variety of different areas. Last quarter, it saw strong revenue growth, but the point at which quantum computing will be truly commercially viable remains years away, with no one knowing for certain when it may happen.

In the third quarter, IonQ's revenue skyrocketed 222% to $39.9 million from $12.4 million a year ago. That was well ahead of the $25 million to $29 million guidance range management offered in August.

But the business continues to be unprofitable, recording a loss of $1.1 billion in the quarter, or $3.58 a share, compared to a loss of $52.5 million, or $0.24 a share, a year ago. And its outstanding share count rose by almost 60% in the past year.

In terms of adjusted earnings, it booked a loss of $0.17 per share compared to its loss of $0.11 per share a year earlier. That adjustment this time excluded a $2.99 per share change related to a loss on the change in fair value of its warrants, among other items. This is a noncash adjustment stemming from the company going public via a reverse merger with a special purpose acquisition company (SPAC) in which it issued warrants. When IonQ's stock price goes up, so does its warrant liability, so this isn't really a bad thing.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to a loss of $48.9 million, compared to a loss of $23.7 million in the prior-year period.

IonQ also continues to burn cash, with negative operating cash flow of $208.7 million through the first nine months of the year, and negative free cash flow of $216.3 million.

It ended Q3 with about $1.5 billion in cash and investments on its balance sheet, and no debt. However, it boosted its cash cushion to $3.5 billion via an equity offering after the quarter ended.

Management now forecasts that its 2025 revenue will land in the $106 million to $110 million range, up from a prior guidance range of $82 million to $100 million. It's expecting an adjusted EBITDA loss of between $206 million and $216 million. It expects fourth-quarter revenue to surpass the third quarter, which would be a change from its previous seasonal pattern.

Image source: Getty Images

Is IonQ stock a buy?

IonQ highlighted some impressive achievements in its systems' performance and accuracy on its earnings call, and the company is seeing strong revenue growth. It also has ample cash to continue to invest and make acquisitions in its pursuit of bringing quantum computing to the mainstream.

Looking at valuation, the stock trades at a forward price-to-sales multiple of about 105, based on analysts' consensus estimates for 2026. That's a huge multiple, especially since no one knows which companies will win the quantum computing race or when the technology will become commercialized.

That said, IonQ is certainly in the running, and if it becomes a leader in the space, its upside from here could still be huge. It's just a very speculative stock that is likely going to see a lot of ups and downs in the years ahead.

Geoffrey Seiler 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.