Is IonQ a Buy?

IonQ (NYSE: IONQ) has attracted a large following based on the premise that the nascent quantum computing market could usher in a host of new advancements in areas such as materials science, artificial intelligence (AI) modeling, drug discovery, and more. The company is taking a relatively unusual approach to quantum computing, utilizing trapped-ion qubits to process data.

However, IonQ is spending heavily as it develops its technology, and its losses are mounting. Despite quantum computing's potential, I think it would be best not to buy IonQ stock right now. Here's why.

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IonQ's losses are rapidly expanding

It's not unusual for high-growth companies that are expanding into emerging trends to spend significant amounts of money. The idea is that a growth company will generate significant revenue, but reinvest all the proceeds (and then some) back into itself.

The problem with IonQ is that its revenue is minuscule compared to its losses. The company generated just under $40 million in the third quarter but reported a loss of more than $1 billion.

That chasm isn't likely to be closed any time soon, either, considering IonQ's losses are expanding at a rapid pace. In the third quarter of 2024, the company reported a loss of $0.24 per share, but a year later, its losses were $3.58 per share.

If IonQ's sales were more impressive, those losses might not seem so bad. But given that the company has such a long way to go before it's even remotely close to being profitable, its expanding losses aren't a good look.

Speculative market and expensive share price

Two other major concerns with IonQ are that the quantum computing market is still unproven and the company's shares are very expensive. Let's tackle the speculativeness of the quantum computing market first.

A report from the researchers at McKinsey estimates that quantum computing could be worth $100 billion by 2035, but that's still a decade away, and it's unlikely the timeline will be sped up. Even leading tech companies such as Alphabet believe that practical applications of quantum computing technology are still up to a decade away.

Quantum computers, by their nature, are extremely sensitive to any outside interference. As a result, they are dramatically more prone to errors than traditional computers. The quantum error correction and mitigation problems are among the chief challenges that IonQ, Alphabet, and others are working to solve as they strive for greater efficiency and accuracy in their machines. However, even as they make improvements, it remains unclear what the long-term demand for quantum computing will be, or how long it may take for engineers to deliver devices that live up to the hype.

This leads me to my next point: IonQ's stock is too expensive. The shares trade at a price-to-sales ratio (P/S) of 163, which is far above the average P/S of 9 for the tech industry. Even if quantum computing were as sure a market as, say, artificial intelligence, that would be an expensive valuation, albeit slightly more justified. Instead, it's just expensive.

Stocks that soar into the stratosphere based solely on investor sentiment rather than strong sales and earnings often fall back to earth if the companies in question deliver a few quarters' worth of weak results or if investors' interest shifts to a new "next big thing." In the meantime, after its gains of 1,100% over the past three years, IonQ stock is priced for perfection.

Avoid IonQ for now

Considering all of the above, I think investors would be better off leaving IonQ stock alone for now. This doesn't mean quantum computing's benefits won't eventually pan out, nor that IonQ won't benefit from it. However, at this point, the stock is too expensive, the company is losing too much money, and the technology looks to be many years away from real-world relevance.

I think there's a case for getting some exposure to quantum computing stocks, but avoiding a direct investment in pure plays would probably be wise at this stage. Instead, consider taking a diversified position by adding a quantum computing exchange-traded fund to your portfolio.

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