If I Had $1,000 to Invest Today, Here's Why I Wouldn't Buy IonQ Stock

Here's a common misconception: Quantum systems are basically just much faster computers. In reality, what makes this technology so promising isn't really about how fast or powerful they are. In fact, quantum computers are much worse at the sorts of computations your smartphone performs billions of times every day.

What makes quantum computing exciting is its potential to tackle different kinds of problems that are impractical or impossible for normal computers to solve on time frames short enough to be useful -- even very fast supercomputers. A tool that could perform those types of calculations could help us discover and create brand new materials, amazing drugs, better batteries, and all sorts of amazing -- and valuable -- things.

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Then why wouldn't I want to invest $1,000 in IonQ (NYSE: IONQ), one of the leading companies attempting to develop quantum computing technology? Here's why.

IonQ's revenue growth

Unlike some of its pure-play competitors, IonQ does already have a real business. Its sales reached $80.1 million in the second quarter, up 287% from a year earlier. The company sells its early quantum computers and rents access to them via the cloud -- although these systems are still mostly research tools -- and acquisitions have expanded its business into networking, security, and sensing equipment.

And its massive acquisition of chip manufacturer SkyWater Technology, which helps it integrate vertically into a one-stop quantum shop, means the company now expects full-year revenue of $450 million to $460 million.

IonQ's growing sales come with steep losses

IonQ is spending heavily to develop its technology. Prior to the SkyWater deal, IonQ's operating losses reached $337 million in the second quarter, more than four times its revenue. SkyWater's business was operating near breakeven, so that ratio should look better when its results are included, but the point is that its core business remains seriously unprofitable.

On a cash basis, the company is losing about $450 million annually, so the $2 billion in cash and investments it has on the books gives it a tough four-year runway to reach profitability.

Why I'm bearish on IonQ stock

This really all comes down to a question of when quantum technology will be ready to take off. The difference between the systems the company sells today and a commercially viable and reliable quantum computer is massive. That doesn't mean that researchers at some of the companies pursuing that goal won't get there, but I think there's a tendency among investors and some insiders to downplay just how much work remains to be done.

I think investors have gotten ahead of themselves, particularly given that the stock trades at a price-to-sales ratio above 40, and it could be a decade before it reaches its primary goal. In the meantime, while IonQ's top line will grow, it will continue to burn cash, eventually forcing it to sell more stock and dilute shareholders. With all that in mind, I think its multiple will compress significantly, and the stock will eventually trade at much lower prices than it's listed at today.

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.