IonQ (NYSE: IONQ), a developer of quantum computing technologies, went public by merging with a special purpose acquisition company (SPAC) on Oct. 1, 2021. The combined company's shares started trading at $10.60 and nearly tripled to a record high of $31.00 about a month later.
But today, IonQ trades at around $13. A $1,000 investment in its public debut would have grown to over $2,900 before shrinking back to about $1,200. Let's see why the bulls initially rushed to IonQ, why it lost its luster, and where it might be headed.
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Why did the bulls fall in love with IonQ?
IonQ attracted a lot of attention as the world's first publicly-traded "pure-play" quantum computing company. The allure of this technology is its potential to process data much faster than traditional computers.
That sounds like a huge leap forward, but the quantum computing market is still held back by three major challenges: quantum computing units (QPUs) are big, they're expensive, and they tend to make more mistakes than traditional computers.
IonQ plans to address those three difficulties with its new "trapped ion" technology, which reduces the width of QPUs from several feet to just a few inches. That miniaturization should make quantum computing systems cheaper and more accurate.
The company also provides its quantum computing power as a cloud-based service through Amazon Web Services (AWS), Microsoft Azure, and other public cloud platforms. That approach makes it easy for companies to access its quantum computing services without installing any on-site hardware.
IonQ was barely generating any revenue at the time of its public debut. But during its pre-merger presentation, it declared its revenue would hit $5 million in 2021, triple to $15 million in 2022, and then double to $34 million in 2023.
Looking ahead, management expected revenue to reach $522 million by 2026 -- which would represent a jaw-dropping compound annual growth rate (CAGR) of 149% from its already aggressive target for 2023. IonQ also claimed it would become profitable in 2026.
Why did IonQ stock retreat from its all-time high?
Investors should have been skeptical of IonQ's ambitious targets from the start, but many still embraced the stock during the peak of the frenzy for growth and meme stocks in late 2021. Then, IonQ started a trend of missing its own expectations.
Revenue came in at just $2.1 million in 2021 and $11.1 million in 2022. Management's latest outlook for full-year 2023 calls for revenue of $21.2 million to $22.0 million, still well below its original forecast of $34 million. IonQ may be growing rapidly as it increases its computing power, but the stock still looks absurdly overvalued at nearly 125 times this year's sales.
IonQ's slower-than-expected revenue growth suggests it won't come anywhere close to breaking even by 2026. To make matters worse, Chris Monroe, IonQ's co-founder and chief scientist who developed the trapped ion technology its entire miniaturization strategy is based upon, abruptly left the company in October. A prolific short seller also accused IonQ of grossly exaggerating its own miniaturization capabilities and computing power, alleging that the company was actually running its services on third-party QPUs from Honeywell to cover up those shortcomings.
All of those challenges rattled investors as rising interest rates crushed the market's speculative stocks. That's why IonQ has nearly taken a round trip back to its debut price over the past two years.
Where will IonQ stock head over the next few years?
Analysts expect IonQ's revenue to rise from about $22 million in 2023 to $88 million in 2025, which would represent a CAGR of 100%. But it's also expected to rack up net losses of $100 million to $200 million per year for the foreseeable future.
With an enterprise value of $2.57 billion, IonQ already trades at 29 times its estimated sales for 2025, so its long-term growth potential is very much baked into the valuation already.
At these levels, IonQ stock will remain volatile over the next few years. Curious investors should monitor the company's progress as it attempts to miniaturize its systems, scale the business, stabilize the bottom line, and address the overall concerns regarding its trapped ion technology.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
