1 Stock To Own For The Next 10 Years
The Cloud computing has grown exponentially in recent years. To address the rising demand, technology companies are stepping up to the plate, including those focused on quantum computing. By harnessing the phenomena of quantum mechanics, innovative firms are solving complex problems to transform the way we work, live, and play.
Although quantum computing is still in its infancy, its potential is immense. One company aiming to capitalize on the opportunity is IonQ, Inc.(NYSE: IONQ), a relative newcomer that merged with dMY Technology Group III to go public. Its network of quantum computers that are accessible via the cloud and investors appetites have been whetted.
What Is IonQ and What Is Its Business Model?
IonQ has only been in the spotlight for a year or so but was initially founded in 2015 by Dr. Jungsang Kim and Dr. Christopher Monroe. It received $2 million in seed funding from New Enterprise Associates, an American-based venture capital firm. Before funding, Professors Monroe and Kim had spent over two decades combined, researching quantum physics. This is what led to the idea of building a programmable quantum computer.
Between the company’s founding date and 2018, IonQ raised another $20 million. And by 2019, the top brass at the firm had secured an additional $55 million. The same year, partnerships with Microsoft Azure and Amazon Web Services’ Amazon Braket paved the way for cloud access. This was thanks to the company’s new CEO and president, Peter Chapman, the previous Director of Engineering for Amazon Prime.
In 2020, there were rumors that IonQ, the leader in quantum computing, was considering an initial public offering (IPO). But instead of raising capital within a conventional IPO, the company chose to go public via a SPAC merger. This deal created an entity that was estimated to be worth around $2 billion and raised $650 million.
When it comes to what IonQ offers, it’s important to understand the type of quantum technology used. IonQ uses trapped-ion qubits that are created from an isotype of ytterbium, a rare-earth metal. The process itself is rather complex and incredibly high-tech, involving precision lasers to form a positively charged ion. Those ions are then positioned into a trap, which IonQ uses to create a computer.
The goal here is to create a computer that can solve problems that today’s classical computers cannot, surpassing the capabilities of any supercomputer.
IonQ’s Valuation
During its last earnings report, IonQ released positive results. Indeed, the company’s stock soared.
The company didn’t have any revenue in the third-quarter of last year because IonQ didn’t go public until October 1, following a special purpose acquisition company (SPAC) merger. However, on November 16, 2021, IonQ’s stock price increased by 189% – having gone public only a month prior.
In November 2021, Dell Technologies and IonQ paired up to test a hybrid classical-quantum platform. Testing that would not have been possible without IonQ’s API. This partnership is just the beginning. As quantum hardware and algorithms evolve, the possibilities will be virtually endless. But since quantum computing is still so new, and will not likely outperform supercomputers for at least another five years, the question remains, how is IonQ making money? What is it that investors are so interested in?
Although IonQ hasn’t disclosed revenues, the company has said publicly that it is in the eight figure range, with a run rate in the tens of millions per year. Since quantum computing is going to power the future of the cloud, its market cap has the potential to join the $100 billion+ club. Amazon and Google are both shareholders, which is telling enough. IonQ has big plans for the future, and believes it will deliver 1,000-qubit quantum computers “within roughly two, maybe three years.”
IonQ forecasts that its revenues will jump from $15 million in 2022 to $522 million in 2026, turning an anticipated profit of $144 million that same year.
So, What Are the Risks?
The most obvious risk here is that IonQ is still an incredibly young publicly-traded company. Not only does the company lack history, but because it is in its infancy, IonQ’s share price could experience more volatile swings compared to larger, more established companies. IonQ did not have any revenue in 2020, and the company doesn’t forecast a significant leap in revenues in the very near future.
Since the door to quantum IPOs or SPACs is open, other companies will likely soon follow. There could be competitive pressures that force IonQ to redirect its financial resources. But time will tell.
Regardless of these risks, the average analyst recommendation is that IONQ is a strong buy.
Should You Buy IonQ Stock?
Although IonQ lacks revenue today, the demand for quantum computing technology is real. More importantly, the road to commercialization is very much tangible. Also, investors are getting a sense that this could be a great long-term investment based on the companies backing IonQ, including the most prominent companies in the technology space.
