1 Thing to Know Before Buying IonQ Stock

Quantum computing is getting some attention from investors -- a nice change of pace from the relentless onslaught of artificial intelligence (AI) developments over the past couple of years. Alphabet's Google recently announced a significant breakthrough with its Willow quantum chip related to error correction, and pure-play quantum computing stock IonQ (NYSE: IONQ) has seen its stock rocket higher over the past few months.

IonQ builds quantum computers and develops quantum networking technology. While the company isn't profitable, it's generating meaningful revenue. Recent deals with the U.S. Air Force Research Lab and the University of Maryland helped fuel IonQ's momentum, with the company more than doubling revenue in the third quarter to $12.4 million.

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The potential of quantum computing is certainly real. By taking advantage of the strange properties of quantum mechanics, a quantum computer composed of qubits can perform certain classes of computational tasks exponentially faster than a traditional supercomputer.

While the bits of a traditional computer are always in one of two states, the qubits of a quantum computer are a lot fuzzier, existing as a superposition of both states. This quantum weirdness unlocks the ability to solve problems that are effectively impossible for even the most powerful traditional supercomputer.

There's one big catch

While IonQ is on the ground floor of what could very well be the next major technological breakthrough, it's important that investors remember one important thing: A quantum computer has never outperformed a traditional supercomputer on a real-world, commercially relevant application. Companies like IonQ, Google, and IBM have been building ever-more powerful and capable quantum computers, but they've only been useful for solving toy problems.

The first computer that could reasonably be called a quantum computer was built by IBM back in 1998. More than 25 years later, the field of quantum computing has advanced dramatically, but quantum computers are still not commercially viable.

It's unlikely that commercial viability will happen anytime soon. IBM has a 2029 target for delivering a quantum computing system with 200 qubits and sufficient error correction to run large-scale problems, but it's hard to predict whether that system will be useful beyond research and academia.

A lottery ticket

IonQ is now valued at nearly $10 billion. That valuation is solely supported by the company's perceived long-term potential, not its current results. For IonQ to work out as an investment, not only does quantum computing technology need to reach commercial viability before the company runs out of capital and the ability to raise more capital, but it also needs to emerge as an industry leader.

All of that is possible, but the odds are likely low. It could take a decade or more for quantum computers to be used commercially in any meaningful way, and it's possible that they'll never be useful for solving real-world problems that stump supercomputers. Quantum computers may very well remain a science project for the foreseeable future.

IonQ is a quintessential high-risk, high-reward stock. There's an outside chance that the company will make a major breakthrough that turns quantum computing into a massive new industry, but the most likely outcome is that the company never will live up to its frothy valuation.

Investing in IonQ can certainly make sense for investors looking for exposure to the quantum computing industry, but any stake should be small enough that losing 100% isn't a disaster.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.