Photo by Steve Johnson on Unsplash
It behooves the savvy investor to search out the “next Nvidia” that is exposed to the same secular AI tailwinds but has more upside potential than Nvidia given its tremendous size ($1.2T market capitalization). Could IonQ (IONQ), with a market cap of only $2.5B, be that quantum computing company? 

About IonQ
IonQ is the sole publicly traded “pure play” in quantum computing (QC) and is pioneering trapped ions technology systems that function at room temperature (i.e. don’t require massive refrigeration) and this has the potential of disrupting its competitors because it is able to shrink QC systems from several feet to just a few inches. IonQ measures its quantum processing power in algorithmic qubits (AQ) – a metric invented by the company to denote the number of qubits in a processor that can be put to useful work, rather than the sheer number of physical qubits. It achieved an  AQ of 29 earlier this year and plans to reach 35 AQ in 2024 with the launch of its IonQ Forte Enterprise  (see here), 64 AQ in 2025 with the launch of its IonQ Tempo and 1,024 AQ by 2028. If achieved, that would represent a compound annual growth rate of 104% in its quantum computing power, or roughly doubling the qubits each year. The Forte Enterprise will fit into 8 server cabinets, which represents a 40% reduction in size and the Tempo will fit into just 3 cabinets. 

IonQ Is Growing Rapidly
Its stock is UP 257% YTD and management expects the company’s revenue to jump by 93%-100% to $21.2-$22.0 million in 2023 as it continues to secure more contracts. That’s impressive!  Analysts expect IonQ’s revenue to rise from $22 million in 2023 to $88 million in 2025 and Fortune Business Insights believes the quantum computing market could still grow at a CAGR of 32% from 2023 to 2030. IonQ added $26.3 million in bookings during Q3 as companies and the U.S. military (a $25.5 million deal with the US Air Force Research Lab for quantum networking exploration) took advantage of its products and it has boosted its bookings estimates to $60-$63 million by year-end 2023 and to over $100 million in 2024. IonQ’s Q3 financial results (see here) reported revenue of $6.1 million but its net loss rose to $(44.8)M, almost double its $(24)M loss the previous year. Its Adjusted EBITDA loss was $(22.4)M,

IonQ Is Shifting Its Business Model
At present, IonQ hosts devices at its own facilities and allows customers to access them through Amazon, Google, and Microsoft cloud services. Part of the problem though, says IonQ CEO Peter Chapman, is that “providers don’t currently have service-level agreements for quantum hardware – contracts that guarantee customers certain levels of availability and performance – and that’s largely because this would require a large number of quantum computers to balance loads, and at present the company has only one device from each generation running at a time so, sometimes, if there’s a large number of jobs in the queue, there might be a delay of several hours to have a job run so, to put things into production, that problem has to be solved.” Chapman says the company eventually hopes to sell a significant number of its machines to cloud partners to provide more reliable quantum cloud services but his team also thinks there are plenty of companies for whom a dedicated, on-site quantum computer makes sense.However, according to Thomas Monz, CEO of Alpine Quantum Technologies, that unveiled a 29-qubit trapped-ion computer that could fit into a pair of server cabinets back in 2021, the shift in IonQ’s business model – from selling remote access to its devices over the cloud to hardware sales – could make scaling revenue more challenging because a new device must be built for each new customer rather than serving many users on the same hardware.

IonQ Is Currently Grossly Overvalued
As things stand today, IonQ isn’t cheap as the following valuation metrics attest:

Conclusion
In answer to the opening question as to whether, or not, IONQ could be the “next Nvidia” the verdict is still out. Its extremely high PSR, along with its persistent losses, could limit its upside potential BUT, if IonQ hits its processing target of AQ 1,024 by 2028, locks in more customers, and continues to expand, it could quickly improve its PSR, generates a profit and boost its margins and, as the industry booms, could become a key beneficiary and see its shares do well over time.

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