Down 45%, Should You Buy the Dip on IonQ?

IonQ (NYSE: IONQ), a provider of quantum computing systems and cloud-based services, went public by merging with a special purpose acquisition company (SPAC) on Oct. 1, 2021. The combined company's stock started trading at $10.60 per share, then endured some wild swings before closing at a record high of $51.07 on Jan. 6, 2025.

At the time, investors were impressed by IonQ's early mover's advantage in the quantum computing market and its rapid growth. President Donald Trump's victory in last November's U.S. election also sparked a buying frenzy in pricier growth stocks.

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Yet, IonQ's stock has plunged about 45% since then. The bulls retreated as the Trump Administration's "Liberation Day" tariffs rattled the markets and stoked fears of a recession. It also became increasingly difficult to justify its sky-high valuations. So should investors consider IonQ's pullback to be a buying opportunity, or a grim warning of darker days ahead?

What does IonQ do?

Traditional computers, even those running the fastest CPUs, store their data in binary bits of zeros and ones. Quantum computers store zeros and ones simultaneously in "qubits," so they can process larger amounts of data at a much faster rate.

However, quantum computers are also larger, consume more power, and are much pricier than traditional servers and mainframes. They also make a higher percentage of mistakes. Due to those limitations, they're still mainly used by universities and government agencies for niche research projects, instead of for mainstream computing tasks.

IonQ sells three quantum computers: Its older Aria system, its flagship Forte system, and its data center-oriented Forte Enterprise system. It plans to roll out its fourth system, the Tempo, later this year.

All its systems use a "trapped ion" technology that isolates individual ions (charged atoms) with electromagnetic fields in a vacuum chamber. It claims that this process is more accurate and power-efficient than other competing methods like superconducting qubits and photonic qubits. IonQ also serves up its quantum computing power as a cloud-based service for customers that want to develop quantum applications without installing on-premise systems.

IonQ measures its quantum computing power in algorithmic qubits (AQ). Both versions of Forte reached 36 AQ at the end of 2024. It expects Tempo to achieve 64 AQ by using barium ions instead of ytterbium ions to improve its stability.

That means IonQ remains on track to achieve its ambitious long-term goal of generating 64 AQ in 2025, 256 AQ in 2026, 384 AQ in 2027, and 1,024 AQ in 2028. It also expects its gate fidelity (its error detection rate) to rise from 99.9% in 2024 to 99.95% in 2028 as it rolls out its more advanced systems.

How fast is IonQ growing?

From 2021 to 2024, IonQ's annual revenue surged from $2 million to $43 million. That growth trajectory was impressive, but it still significantly missed its own pre-merger estimates.

Data source: IonQ.

The unexpected departure of its chief science officer, Dr. Chris Monroe, also rattled its investors in late 2023. However, IonQ continued to roll out new systems, sign new government and enterprise contracts, and acquire some of its smaller competitors. It even integrated Nvidia's parallel computing platform CUDA (Compute Unified Device Architecture) into its own quantum systems to support the integration of the chipmaker's AI-oriented GPUs.

From 2024 to 2027, analysts expect IonQ's revenue to grow at a compound annual growth rate (CAGR) of 88% to $290 million. But with a market capitalization of $6.56 billion, IonQ is already valued at 23 times its estimated sales for 2027. It also isn't expected to break even anytime soon.

Should you buy IonQ's stock right now?

The quantum computing market could expand at a CAGR of 28.5% from 2025 to 2035, according to Market Research Future. If IonQ merely matches that growth rate, its revenue could grow from an estimated $85 million in 2025 to $939 million in 2035.

That would be an impressive growth trajectory, but too much of its growth is baked into its current valuations. Even if its stock were cut in half, it would still be considered expensive relative to its growth. That might be why its insiders sold more than twice as many shares as they bought over the past three months, and why 18% of its float was being shorted in mid-April.

IonQ might be worth nibbling on as a speculative play on the nascent quantum computing market, but investors shouldn't assume it won't drop even lower. In short, it's too early to consider its recent pullback to be a great buying opportunity.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.