IonQ Has Made Another Quantum Computing Breakthrough: Here's What a $1,000 Investment in It Could Look Like in 5 Years
Key Points
IonQ tested a single-CPU error decoder against simulated quantum circuits.
In the second quarter, revenue rose 287% year over year to $80.1 million, but adjusted earnings remained negative.
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IonQ (NYSE: IONQ) recently announced a breakthrough in quantum computing: It has found a way to detect errors in a complex quantum computing calculation without forcing the machine to slow down. That's the kind of progress that gets investors excited.
But a breakthrough in the lab can't tell us much about what the stock might be worth five years from now. If you invested $1,000 in IonQ today, how much could your position be worth in 2031?
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What IonQ's quantum breakthrough actually means
While traditional computers process information in bits, quantum computers use qubits. The important thing to know about these qubits is that, unlike bits, they are incredibly sensitive to even slight outside interference. That makes quantum computing systems extremely error-prone.
For such machines to do real, useful work in the world, they need supporting systems that can spot errors as they occur and correct them without falling behind. That is hard to do.
Now, IonQ says it has tested an error-correction program that allowed a single consumer CPU to keep pace with quantum calculations and successfully correct errors. Previously, researchers have had to rely on more elaborate systems of expensive specialized hardware to handle that task.
Image source: Getty Images.
This could be big news, as it potentially could meaningfully lower the cost and complexity of quantum error correction -- one of the key challenges in the quantum computing space -- and help the technology progress from the lab to real, commercial applications.
But there's a crucial distinction here: IonQ tested its error-checking system against simulated workloads. It hasn't actually demonstrated it on a real workload in the real world.
IonQ's growing business and its losses
While quantum computing's real promise and expected commercial utility remain far in the future, IonQ does have a real business that generated $80.1 million in its last quarter. That was up 287% from a year earlier.
After its acquisition of chip foundry SkyWater, the company has about $2 billion on hand, giving it a substantial financial cushion.
Despite the growth on the top line, however, IonQ still is far from turning a profit. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last quarter came in at a $120.3 million loss.
What $1,000 could be worth in five years
IonQ's market capitalization is about $16.9 billion. That's roughly 37 times its forecast for 2026 sales. Even allowing for how quickly the company is growing, investors are paying for a whole lot of hoped-for future success.
With that in mind, here are three scenarios I see for what a $1,000 investment made today could be worth five years from now. Keep in mind that these are rough sketches, based on many assumptions.
| Investment Case | Premise | IonQ's Implied 2031 Market Value | Value of $1,000 Investment in 2031 |
|---|---|---|---|
| Bull | IonQ's quantum computing technology has matured quickly and is in early commercialization. | $80 billion | ~ $4,738 |
| Base | Progress has continued, but practical systems are still years away. | $25 billion | ~ $1,479 |
| Bear | Progress has stalled, and whether IonQ's systems will achieve true commercialization is still an open question. | $5 billion | ~ $295 |
Why I'm cautious about the bull case
I think IonQ's latest achievement is meaningful -- it directly addresses one of the most important obstacles to the commercialization of this nascent technology -- but there's still a long way to go if quantum computers are going to live up to their potential.
I won't deny that quantum computing technology could be immensely powerful and potentially lucrative, but I fear that investors have gotten far ahead of themselves and the progress of the technology.
The valuation of IonQ at this point just doesn't compute for me, and given the extremely high sales multiple it trades at, I think this stock and other pure plays will get hit hard if the market corrects before useful quantum computing arrives. Moreover, I think the bear case is the more likely scenario to be playing out five years from now.
Of course, it's certainly possible that developers of quantum computing will succeed in bringing reliable and commercializable systems to market much faster than I anticipate. If useful quantum computers are on the market in five years, I may have to eat my words.
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Johnny Rice 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.
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