IonQ is working hard to commercialize quantum computing technology, but the company is losing a lot of money. IonQ stock is up 294% in the past year. This is likely due to industry breakthroughs in quantum computer chips that are helping improve error correction and computational speeds.
IonQ has a market cap of $8.6 billion as of this writing. It is the largest pure-play quantum computing stock on the market. Investors have been excited about IonQ in the last few quarters.
However, the surge in IonQ’s stock price can’t be attributed to the company’s underlying financial performance. IonQ is generating minimal sales and racking up huge losses quarter after quarter. IonQ aims to build quantum computers to sell to third parties.
Quantum computers promise to compute difficult problems exponentially faster than traditional computers. If quantum computers can be widely commercialized, it could lead to a revolution in computing. IonQ has an early-stage quantum computer that it sells to research institutions and through cloud computing platforms.
One major problem with quantum computers is their error-proneness. Last year, IonQ claimed it built a new quantum computer chip that reduced errors as it scaled up. However, it’s still not ready for commercialization.
IonQ faces financial challenges
We cannot overlook a stock’s financial health. IonQ is in a tricky place as a company that’s essentially in the pre-revenue phase.
Last quarter, the company generated just $7.6 million in revenue, and it generated $43 million over the last 12 months. Yet, its operating loss was $255 million in the last 12 months. IonQ management has padded the balance sheet by raising money through an at-the-market offering.
This brought the cash pile to around $700 million at the quarter-end. However, this still hurts existing shareholders through share dilution. In order to research quantum computers, IonQ spent $40 million on research and $23.8 million on general overhead costs last quarter.
The company needs to rapidly scale up its revenue to cover these costs. However, it cannot do so without more breakthroughs in quantum computing research. Betting on scientific breakthroughs is a difficult way to invest.
This is especially true when the stock has a market cap in the billions and minimal revenue. The next few years for IonQ will likely mirror the past: huge operating losses, significant cash burn, and shareholder dilution. IonQ looks like a stock with limited upside and major downside potential.
IonQ stock is up almost 300% in the past 12 months, but the next few years could be painful for shareholders who buy today.
