IonQ (NYSE:IONQ) is arguably the first major player in the quantum computing space. IONQ stock debuted a few weeks ago following its merger with a special purpose acquisition company (SPAC). The shares of IONQ stock have been relatively quiet so far, moving just a hair above its initial $10 offering price.
Quantum computing is one of the most exciting new industries to emerge in recent years. It promises to transform our very notion of computing, unlocking computational power that are thousands of times beyond what is available now. Quantum computing isn’t just an improvement on existing technology, but an entirely new way to think about artificial intelligence (AI).
If quantum computing makes the sorts of leaps that its backers envision, it should open up whole new fields in machine learning, computational chemistry, weather forecasting, pharmaceutical research, and many other sectors. The companies that lead this transition should be able to make a fortune, so IONQ stock could eventually soar way above its current value.
What Is IonQ?
IonQ offers its customers access to its quantum computing capabilities. Those capabilities are measured in quantum bits, or “qubits.” At the time of its SPAC deal, IonQ offered an 11-qubit system. Over time, it should develop machines with much higher qubits, in order to stay ahead of rivals such as Rigetti Computing. Rigetti is currently trading through the shares of a SPAC named Supernova Partners Acquisition Company II (NYSE:SNII).
IonQ’s website identifies various, eventual uses for its next-generation computing. Its systems could eventually enable the capture of carbon from the air efficiently, potentially disarming the climate-change time bomb.
A more powerful processor might also unlock the secrets of chemistry that have so far prevented us from making truly cheap, reliable electric vehicle (EV) batteries. These sorts of innovations could change the global economy.
Notable Risk Factors
In its recent prospectus, IonQ issued a blunt warning to potential investors, saying: “IonQ has not produced a scalable quantum computer and faces significant barriers in its attempts to produce quantum computers. If IonQ cannot successfully overcome those barriers, its business will be negatively impacted and could fail.”
It’s normal for companies to disclose potentially worrisome issues in the risk factor sections of their regulatory filings. What’s less common, however, is for a firm’s core business model to be so uncertain. Will IonQ be able to produce quantum computers cheaply enough to sell them for a commercially viable price? We’ll have to wait and see.
IonQ also revealed that it had found a material weakness in its accounting process. That isn’t necessarily a big deal for newly-public companies. Sometimes young firms adjusting to life on the public markets need time to learn the accounting rules Still, it would be preferable for the company not to have issued such a warning.
IonQ is much closer to a start-up that a venture capital firm would back than a traditional, publicly traded company. That’s because its technology is in the earliest of stages, and it’s far from clear what sort of demand exists for the product right now. IonQ is still trying to develop both its technical capabilities and an attractive roster of customers.
The company doesn’t expect to achieve profitability and large-scale revenue until around 2024 or 2025. And it will only be able to meet that goal if it achieves several milestones along the way.
A potential investor in IONQ stock needs to put the shares in a different category than other holdings. It isn’t a blue chip name or an equity that should be held for a 20% or 30% gain. The shares could potentially skyrocket or lose most of their value, depending on how the science and industry evolves. Investors should keep that in mind when they decide how many shares of IONQ stock to buy.
The Verdict on IONQ Stock
IonQ or one of its rivals, such as Rigetti, could end up being a world-changing company. Quantum computing, if it delivers on its potential, would be a leap forward for science.
Even assuming that happens, however, it could easily be five years, ten years, or more until quantum computing generates high operating profits. This is not going to be an overnight process.
As a result, don’t be surprised if short sellers gravitate to quantum computing stocks . Companies pursuing scientific initiatives that will take a long time to complete tend to attract critics.
Look at the recent excitement around Gingko Bioworks (NYSE:DNA) and the short seller report suggesting that its cell programming is more a pipe dream than plausible technology for now. Bears could make a similar sort of argument about quantum computing and cause the sector’s stock prices to be volatile.
As IonQ’s own prospectus warned, its hardware is not yet advanced enough to enable it to have a business model that will allow it to grow.
The owners of IONQ stock are now funding the company’s ongoing research efforts. That research could prove to be very profitable or it could come up empty.
Buying a small amount of this speculative stock might make sense at this point, but it seems prudent to wait and see how the industry develops before betting too heavily on the shares.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.