Is IonQ Stock a Buy?

The nascent field of quantum computing holds the potential to transform today's computer paradigm. The technology uses subatomic particles to perform multiple calculations simultaneously instead of the slower, sequential processing of traditional computers.

This trait means quantum machines may one day perform complex calculations beyond the abilities of the world's most powerful supercomputers, making the field an interesting investment area. IonQ (NYSE: IONQ) is one of the companies focused on building quantum computers.

IonQ's share price recently shot up 21% on news that the company was awarded a $54.5 million contract with the U.S. Air Force Research Lab. With this win under its belt, does IonQ represent a quantum computing company on the rise?

The industry's game-changing potential could make IonQ a great investment, but that's far from a foregone conclusion. Here's a look into IonQ to help you assess whether it's a worthwhile long-term investment.

IonQ's customer gains translate into revenue growth

A key factor in assessing IonQ as an investment is its ability to capture customers. In this area, the company has some impressive clientele.

Along with the U.S. Air Force Research Lab, IonQ's list of customers includes the states of Maryland, South Carolina, and Washington and Oak Ridge National Laboratory, which seeks to improve the U.S. power grid using quantum computers.

The company also possesses a cadre of commercial customers. For example, Hyundai utilizes the firm's tech to develop self-driving cars, and Airbus employs IonQ's quantum algorithms to calculate cargo optimization. Its ability to attract customers led to IonQ's streak of strong year-over-year revenue gains.

Data source: IonQ. YOY = year over year.

The tech firm expects 2024 sales to hit at least $38 million, a 73% increase over 2023's $22 million.

The strength of IonQ's technology

IonQ is able to expand its customer base because of its compelling quantum computing technology. It uses ions because these particles possess attributes that make them more appealing than techniques adopted by competitors.

For instance, one challenge with quantum computers is that subatomic particles are inherently unstable. Any change in their environment, such as an increase in temperature or electrical current, can disrupt the particles, causing errors in the calculations.

When errors occur, costly corrections must be made, but IonQ's technology can deliver 99.9% accuracy, referred to as fidelity, which minimizes error-correction needs. The company switched from the element ytterbium to barium, the first in the quantum computing industry to do so, according to IonQ, in an effort to boost fidelity further.

The reliability of IonQ's quantum computers is one factor driving customer adoption. Another is that the company's systems can operate at room temperature, an advantage over competitors who, to reduce errors, keep their quantum computing systems in special cryogenic chambers at temperatures colder than outer space.

In addition, access to IonQ's quantum computers is readily available through all major cloud computing vendors, such as Amazon Web Services, providing convenience to customers.

Other factors to consider with IonQ stock

Building cutting-edge quantum computers is not cheap, given the research and development (R&D) efforts required. Consequently, IonQ is unprofitable. The company's net loss in its second quarter totaled $37.6 million as its R&D costs ballooned to $31.2 million from $19.9 million in 2023.

However, operating at a loss isn't a concern at this stage in its business life so long as IonQ continues increasing revenue. Many young tech companies sacrifice profits to grow as fast as possible, and that's the case with IonQ.

Not only does the company continue to improve its technology, but it also opened the first U.S. manufacturing plant dedicated to quantum computing this year. According to CEO Peter Chapman, "Our investment in our manufacturing is already paying off, now enabling us to build multiple production systems at a time."

Moreover, the completion of its plant means IonQ can dial back spending, which should improve its bottom line over time. CFO Thomas Kramer noted, "A significant portion of our investment in setting up manufacturing is now behind us. We increasingly look to focus on conservative spending and ramping up sales of large deals."

IonQ also possesses a healthy balance sheet. Its Q2 total assets were $517.4 million, with $369.8 million of that in cash, cash equivalents, and short-term investments. Q2 total liabilities were $54.2 million, and $13.8 million of that was unearned revenue, also called deferred revenue, which represents payments received from customers that will be recognized as income once IonQ fulfills its contract obligations.

Despite the positives, investors should be aware that quantum computing technology is still years, perhaps decades, away from widespread use. Some estimates suggest the quantum computing market will not reach maturity until after 2040.

In the meantime, IonQ's shares will likely experience volatility, judging from the roller-coaster ride over the past year, when shares went from a 52-week high of $16.60 last October to a low of $6.22 this past August. While the company's trajectory is encouraging, IonQ stock is still speculative at this stage, making it suitable only for investors with a high risk tolerance.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Robert Izquierdo has positions in Amazon and IonQ. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.