Where Will IonQ Be in 3 Years?

Quantum computing may change how you think of computers someday. The technology promises to solve problems a digital computer simply can't handle, while also speeding up very slow computing tasks. In theory, quantum computers should be great at finding patterns in unstructured data, which comes in handy for many real-world uses. The technology may turn many industries upside down and inside out, including healthcare research, financial services, and cryptocurrencies.

But that's a long-term promise. Quantum computers are bulky and expensive so far, and their number-crunching powers are not terribly impressive yet. Most of the proposed use cases and algorithms for this new class of computing hardware require hundreds, thousands, or millions of so-called qubits (readable quantum entanglements) before they can outperform old-school digital machines.

Researchers have cracked the 1,000-qubit barrier but those experimental systems rely on expensive superconductors and come with problematic rates of data error. Today's top hardware for commercial use only have a couple of dozen qubits.

IonQ (NYSE: IONQ) is an early leader in quantum computing systems. The company recently shipped its first international order, followed by a $54.5 million research contract with the U.S. Air Force. But those achievements already happened, and investors are more interested in what's next.

So, what role will IonQ play in the quantum computing market 3 years from now? Is this the best quantum computing stock to buy today?

Let's make an educated guess.

Why you should pay attention to IonQ

There's a lot to like about IonQ today. Here's a small sample of investor-friendly events:

• The company has exceeded Wall Street's bottom-line expectations in the last two quarters. The streak of positive revenue surprises stretches all the way back to the spring of 2023. In other words, IonQ investors are getting used to solid earnings reports.
• Research and development is the lifeblood of the quantum computing industry right now, and IonQ makes heavy investments in that crucial function. R&D budgets rose 57% year-over-year in the second quarter, amounting to 52% of the total operating expenses.
• The expensive research is bearing fruit, too. IonQ has achieved 99.9% accuracy in a two-qubit system, paving the way to a 99.999% target by the end of 2025. The company also hopes to build commercial-grade systems with 100 qubits or more at that point.

That crucial R&D commitment isn't cheap

But IonQ isn't perfect. Here are a few of the issues that discourage me from buying its stock today:

• That R&D budget also works out to 274% of IonQ's revenue in the same quarter. It reported a net loss of $37.6 million in the second quarter, based on $11.4 million of top-line revenues in the same period.
• The company raised $573 million when it joined the public market in 2021, merging with a special purpose acquisition company (SPAC). It had $370 million of cash equivalents three years later, having burned through one-third of its cash reserves at an accelerating rate. How long will it take before IonQ has to sign debt papers or run a large stock sale to keep the lights on in the laboratories?

IONQ Free Cash Flow data by YCharts

• I'm talking about an early leader in the commercialization of quantum computing, but it's far from the only name in the business. IonQ is up against deep-pocketed competition, led by tech giants IBM (NYSE: IBM), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Microsoft. Outperforming that brutal lineup won't be easy, and any of them might simply acquire IonQ if the company becomes too successful.

Where IonQ could stand in 2027

The way I see it, IonQ could be either a big winner or a cash-strapped underdog in three years. It might also have become a small subsidiary of a much larger company, perhaps giving early investors a generous buyout premium.

I might need an advanced quantum computer to figure out the odds of each possible scenario. Until those systems become stable, commonplace, and affordable, I might as well flip a three-sided coin or roll some dice to make that investment decision.

And that's why I don't own IonQ stock yet -- it's more of a gamble than an investment at this point.

For now, I'm happy to watch the quantum computing space from a premium seat on the sidelines, sponsored by my holdings in IBM and Alphabet. These giants are at least as likely as IonQ to dominate this newfangled industry in the long run, and they're already giants of other fields today. I'll keep a close eye on IonQ's progress, but it's too risky for my taste right now.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,492!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,204!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $409,559!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 28, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet and International Business Machines. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends International Business Machines and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.