Better Quantum Computing Stock: Microsoft vs. IonQ

Quantum computers promise to revolutionize computing as we know it, making it a promising industry to invest in. For example, Alphabet-owned Google's quantum computer completed a complex calculation in six seconds that would have taken 47 years with a supercomputer.

This demonstrates quantum advantage, a term describing when quantum machines can outperform today's computers. Quantum computing uses subatomic particles, called qubits, to execute many calculations simultaneously, accelerating a traditional computer's sequential process. But while Google's demonstration was impressive, these machines are a long way from everyday use.

Yet several companies are racing to make that happen. Two of the most prominent are veteran Microsoft (NASDAQ: MSFT) and newcomer IonQ (NYSE: IONQ). The former is a tech colossus, but the latter benefits from concentrating exclusively on quantum computing.

In this comparison between David and Goliath, which is the better investment in the nascent quantum computing field? Let's look at each company to arrive at an answer.

Microsoft's quantum computing approach

Microsoft began working on quantum computers in the late 1990s, attempting to build quantum systems capable of reliably scaling up. This reliability is critical because qubits are inherently unstable. Any outside influence, such as an increase in temperature, can disrupt a qubit, causing calculation errors.

The company went on a decades-long quest to overcome this problem. Today, the conglomerate brings together several components to deliver a dependable quantum system. It combines its Azure cloud computing platform, the software it developed for quantum computers, and quantum hardware from partners such as Quantinuum and Atom Computing.

Earlier this year, Microsoft combined its software with Quantinuum's hardware to improve error rates by 800 times. In September, Microsoft and Atom Computing partnered to build "the world's most powerful quantum machine," according to the companies.

Microsoft does not disclose quantum computing-related revenue. In its 2024 fiscal year, ended June 30, the conglomerate's quantum computing business fell under its research and development efforts, suggesting the technology's revenue contribution, if any, isn't material to Microsoft's business at this point.

This makes sense. After all, Microsoft's bread and butter is its Azure, Windows, and Office products, which helped it hit $245.1 billion in sales during its 2024 fiscal year, a 16% year-over-year increase.

IonQ's quantum computing progress

Compared to Microsoft, IonQ's quantum computing history is short, the company having been founded in 2015. Even so, its quantum offerings generate rapidly rising revenue.

IonQ achieved $11.4 million in sales in the second quarter, a 106% year-over-year increase. For the full year, IonQ estimates it will reach revenue of at least $38 million, up 73% from 2023's $22 million.

The company is successfully growing revenue because its quantum computing technology has attracted customers such as Oak Ridge National Laboratory, which is using IonQ's tech to improve the U.S. power grid, and Hyundai, which is developing self-driving vehicles with IonQ's quantum computers. The firm even partners with Microsoft, making its quantum hardware available through Microsoft's Azure platform.

On its quest to reach quantum advantage, IonQ's tech employs ions for its qubits. This, coupled with its specialized hardware, enabled the firm to achieve 99.9% accuracy in its qubits.

In an effort to boost accuracy further, IonQ shifted to using ions from the element barium instead of ytterbium, the first in the industry to do so. This change will be integrated into its hardware starting next year.

Deciding between Microsoft and IonQ stock

From a technological perspective, IonQ appears to have produced more tangible quantum computing results than Microsoft, as demonstrated by its revenue growth and technical achievements. Even so, the company is not profitable. In Q2, IonQ suffered a net loss of $37.6 million.

Meanwhile, Microsoft is growing profits. In its fiscal fourth quarter, ended June 30, the company generated $22 billion in net income, a 10% increase year over year. That's just one reason to favor Microsoft over IonQ.

Another is investment risk. IonQ's lack of profitability means if it can't maintain its torrid pace of revenue growth, it could struggle financially, while Microsoft offers a stable business.

In addition, industry forecasts indicate that quantum computing's current phase, where the tech is in early development, will last until at least 2030. That's when quantum advantage is estimated to finally start tipping the scales away from traditional computers. With many years before that happens, there's no telling who will succeed.

Also, Microsoft pays a dividend, which the conglomerate increased 10% in September to $0.83 per share. IonQ does not pay a dividend.

Moreover, from a stock valuation perspective, Microsoft is the superior choice. Because IonQ is not profitable, let's look at the price-to-sales ratio (P/S ratio), which reveals how much an investor must pay for a share of a stock relative to its revenue.

Data by YCharts.

IonQ's P/S ratio has dropped from earlier in the year, but compared to Microsoft, it's still pricey. Therefore, Microsoft's lower P/S multiple makes it a better value.

Since the quantum computing industry is likely years away from achieving quantum advantage, Microsoft is the better quantum computing investment, and while you wait to see how the industry shakes out, you can collect passive income.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Robert Izquierdo has positions in Alphabet, IonQ, and Microsoft. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.