Exploring Investment Opportunities in Quantum Computing: Is IonQ the Next Nvidia?

Investors are increasingly turning their attention away from the well-known "Magnificent Seven" stocks to explore emerging opportunities in the field of quantum computing.

As new technological megatrends emerge, previously lesser-known companies often gain significant recognition. One such area experiencing a surge in interest is quantum computing, which falls under the broader umbrella of artificial intelligence (AI).

Logic might suggest that this new wave of innovation would strengthen the dominant positions of top AI players like Nvidia, Microsoft, Alphabet, and Amazon. However, many investors feel fatigued by repeatedly hearing about these same companies, prompting some to search for alternative investments that may represent the next big breakthrough.

In this context, IonQ has emerged as a notable contender in the quantum computing space. Its stock price has skyrocketed by 222% in just six months, and its CEO, Niccolo de Masi, has made a striking assertion that could suggest significant growth potential for the future.

Could investing in IonQ today be akin to purchasing Nvidia stock before the advent of the AI revolution? Let's delve deeper.

Bold Claims from IonQ's CEO

The computing sector has evolved through various phases over the years. The introduction of the central processing unit (CPU) marked a pivotal advancement in modern computing. These CPUs manage instructions using complex architectures, playing a crucial role in the performance of personal computers. In the 1990s, Intel was a leading force in the development of CPUs.

As the new millennium rolled in, graphics processing units (GPUs) gained prominence in technology, particularly due to their capability to enhance gaming visuals. GPUs are designed for specialized tasks, utilizing massively parallel processing to deliver fast results. Yet, they serve specific repetitive computing tasks, which highlights the coexistence of both GPUs and CPUs. While Nvidia pioneered GPU development, Advanced Micro Devices has recently become a significant player as well. Presently, GPUs are essential to the current computing landscape, especially since generative AI applications rely heavily on their parallel processing abilities.

Now, the industry is starting to glimpse the potential of quantum computing, a technology that processes data fundamentally differently than conventional computers. Quantum machines have the ability to tackle certain complex problems at speeds that traditional supercomputers would take years to solve. However, practical applications of quantum computing are still limited today. Advocates suggest that it may represent the next evolutionary leap in computing, making it an attractive area for investment.

During a recent CNBC interview, IonQ's CEO described the company as the "800-pound gorilla" in the quantum computing arena, drawing parallels between its trajectory and that of Nvidia before the AI boom.

Assessing the Nvidia Comparison

In his interview, de Masi likened IonQ's current status to Nvidia's position a decade ago. To evaluate the validity of this comparison, we can look at Nvidia's fiscal year 2015—ending on January 25, 2015—when the company posted $4.7 billion in revenue and $631 million in net income. At that time, Nvidia's market capitalization was around $11.3 billion.

Currently, IonQ is a much smaller enterprise than Nvidia was back then. Furthermore, IonQ's cash burn rate has surged even as its revenue growth accelerates. While this could indicate aggressive investment in research and development, it raises concerns about justifying increasing losses for a company that is still in the early stages of revenue generation.

Is IonQ Stock Worth the Investment Now?

In my opinion, drawing a direct comparison between IonQ today and Nvidia prior to the AI revolution is misguided. Currently, IonQ trades at a price-to-sales (P/S) ratio exceeding 100, whereas Nvidia was trading at a mere 2.4 P/S ratio back in early 2015.

This substantial difference in valuation suggests that investors may not fully grasp Nvidia's potential a decade ago. Many did not predict how GPUs would be utilized beyond gaming and image processing, which is why Nvidia commanded a lower valuation despite a solid and profitable business model. In contrast, IonQ's current high premium raises red flags.

Moreover, IonQ's valuation has surged significantly in just a few months. Even if the stock were to experience a notable decline, it would still likely be considered overvalued, especially given the company's slow sales growth and high cash expenditure. While some argue that investing in quantum computing could mirror early investments in AI, I would caution against such a move. There's still considerable development required before quantum technology can be effectively implemented—and it might take years, if not decades, to reach that stage.

If you lack the patience for long-term investments and are unprepared for the potential volatility that accompanies such stocks, IonQ may not be the right choice for you at this time.

Investing, Quantum, Computing