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There is still a long way to go before quantum computing becomes profitable

IonQ is a leading innovator in quantum computing, specializing in trapped-ion technology that enables high-fidelity quantum operations and scalability. With its advanced IonQ Forte system and strategic collaborations, the company is well-positioned for breakthroughs in fields such as drug discovery and financial modeling. In today’s FA Alpha Daily, we explore IonQ’s projected growth and expansion amid its reliance on external funding, making it a high-risk, high-reward investment in quantum computing.

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Quantum computing is often described as the next frontier of technology, capable of solving problems far beyond the reach of classical computers.

By harnessing the principles of quantum mechanics like superposition and entanglement, quantum computers can process complex calculations at speeds unimaginable with today’s technology.

The potential applications are endless, ranging from medical research and material science to cryptography and artificial intelligence.

However, the field is still in its early stages. While the technology shows immense promise, the timeline for practical, profitable quantum solutions remains uncertain.

Developing reliable quantum hardware and algorithms faces major scientific and engineering challenges.

Jensen Huang, CEO of Nvidia (NVDA), stated that practical quantum computing is likely still two decades away, estimating a timeline between 15 to 30 years, with 20 years being the most realistic estimate.

His comments dampened investor enthusiasm, causing sharp declines in quantum computing stocks, which collectively lost over $8 billion in market value.

Huang explained that while quantum computing has potential, its current capabilities are limited to niche calculations, and significant advancements are still needed before it becomes widely useful.

His timeline mirrors the lengthy development path Nvidia itself took for accelerated computing.

Despite these hurdles, companies continue to invest heavily in quantum research, betting on long-term breakthroughs.

IonQ (IONQ) is a leading company in the quantum computing space, focusing on trapped-ion technology, which allows for high-fidelity quantum operations and scalability.

The company has developed the IonQ Forte, a quantum computing system with 36 algorithmic qubits, capable of exploring over 68 billion possibilities simultaneously.

This technology positions IonQ among the most advanced in the field, with significant potential for applications in drug discovery, financial modeling, and complex simulations.

The company has secured multiple government and commercial contracts, including deals with the U.S. Air Force Research Lab, the Department of Defense, and partnerships with AstraZeneca and Ansys.

These collaborations focus on advancing both quantum computing and quantum networking capabilities, particularly for highly secure data transmission and simulations requiring vast computational power.

Recently, the company announced an ambitious initiative, a $1 billion partnership with Maryland and a massive headquarters expansion.

The partnership involves a significant expansion of IonQ’s headquarters into a 100,000-square-foot facility, including a data center, laboratories, and office space at the University of Maryland.

This initiative is set to double the number of employees at the facility to at least 250 over the next five years, subject to legislative approval.

Furthermore, IonQ has set ambitious revenue targets, projecting nearly $1 billion in revenue by 2030 with a compound annual growth rate of over 70%.

All these factors combined enabled the company to have high expectations from the market.

Our EEA model clearly shows this.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market predicts that the company’s Uniform return on assets ‘‘ROA’’ will rise to around 135% from (35%) last year.

However, the company remains unprofitable, relying on equity raises and government contracts to fund its expansion.

Despite recent guidance increases and a strong cash position, IonQ is certainly not cheap.

With achieving commercial viability is a long road ahead, investors should be cautious.

The key question is how to approach quantum computing.

While pure-play companies like IonQ offer high-risk, high-reward potential, they may not align with the risk tolerance of most investors.

A safer bet could involve investing in larger tech companies, such as Alphabet (GOOGL), which are investing in quantum computing but remain diversified across other highly profitable sectors.

This approach provides exposure to quantum computing advancements without the volatility associated with pure-play stocks.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

This portfolio analysis highlights the same insights we share with our FA Alpha Members. To find out more, visit our website.

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