Quantum computing is something you may have seen in a science fiction movie. However, the technology has been around since the late 1990s. These days it’s becoming more and more practical, and companies are rushing to build systems that can harness the power of quantum physics to build computer systems that are more powerful than ever thought possible.
IonQ (IONQ -5.45%) is among the companies attempting to bring these remarkable machines to life. Understandably, any company working on cutting-edge technology will attract Wall Street’s interest. IonQ stock is up more than 160% in the past year.
That sounds good, but IonQ might be a riskier stock than some might think. Here’s why.
Quantum computing: what’s going on?
Quantum technology can create the most powerful computers the world has ever seen. Today’s computers operate on bits, or tiny pieces of binary data that work like a switch. They are either on or off, or in computer language a one or a zero. Today, all computer data is broken down into its simplest form: strings of ones and zeros.
But quantum computing potentially changes the way fundamental computing rules work. Quantum computing uses quantum bits called qubits. Bits are binary, either one or zero. However, qubits can be a one, a zero, or anything in between. A qubit could be half zero and half one, or 20% zero and 80% one.
This flexibility, called superposition, is the potential secret to developing these quantum computers, which can be significantly more powerful than existing technology. There is a reasonable chance that quantum computers will be crucial to the development of advanced artificial intelligence and other new technologies in the coming decades.
A sea full of competition
IonQ is not alone in the race to develop quantum computing technology. From tech giants like Amazon, IBM, alphabetAnd Microsoft In addition to a number of smaller start-ups, a host of companies are competing in this area.
Of course, IonQ claims its technology is better than the package. It uses single atomic ion qubits in an ion trap that the company says is highly configurable and environmentally stable, enabling faster development progress.
It is also the only quantum hardware compatible with all three major cloud platforms: Amazon’s AWS, Google Cloud and Microsoft Azure.
More hype than substance at the moment
Investors should note that the company must translate this into commercial success; Third-quarter revenue was just $6.1 million, a loss for a company with a market cap of nearly $3 billion. It’s still very early, so it’s a little difficult to estimate revenue today. Analysts expect revenue to rise to nearly $200 million by the end of 2026.
The company recently announced a new $25 million research contract with the US Air Force. Receiving government contracts is always a good thing and opens the door for future possible agreements. IonQ management estimates that quantum computing will be a $65 billion market by 2030. Looking at least five years into the future, there is potential for the company.
However, investors should not assume that IonQ will dominate the competition and win business over its rivals. Even if IonQ’s quantum product is superior, more goes into a company than just the best technology. Until significant returns are achieved, investors take a leap of faith, which of course makes the stock riskier.
Is IonQ Stock a Buy?
The company’s $3 billion market cap on low revenue shows that the market is pricing in a success that is technically yet to happen. This makes a stock increasingly risky because you are buying a story with potential and not concrete financials. Investors have yet to determine what margins or cash flow the company will generate.
It’s also difficult to look years into the future, especially when it comes to cutting-edge technology that is still in development. Technical setbacks could slow progress and IonQ’s position among competitors could improve or worsen.
For most, IonQ has too many questions to consider it a high-priority investment. Consider waiting for more evidence of what the company might look like before risking your money. If you’re worried about missing out, consider buying small amounts at a time to protect yourself from the ups and downs of a speculative stock like IonQ.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon and Microsoft. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.