Is IonQ a Buy?

Key Points

• IonQ takes a unique approach to quantum computing that could make it a winner.

• The company is looking to follow Nvidia's playbook and create an entire ecosystem.

• Despite the promise of this young field, the stock is highly speculative at this point.

• 10 stocks we like better than IonQ ›

Artificial intelligence (AI) is helping drive the market higher right now, but it's not the only game-changing technology on the horizon. The next big technological leap could come from quantum computing, which takes a completely different approach to solving problems.

One company right in the middle of this shift is IonQ (NYSE: IONQ). The company wants to become the Nvidia of quantum computing, and it is following the chip leader's playbook. Let's take a closer look at quantum computing and how IonQ is positioning itself.

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Image source: Getty Images.

The next potential big tech breakthrough

Quantum computing works by replacing traditional bits, which are either a zero or a one, with qubits that can be both at the same time. That's the whole trick behind what's called superposition, and it's what lets quantum machines tackle problems that would take a regular computer forever. The problem, though, is that qubits throw off a lot of errors.

IonQ is working to help overcome this quantum computing obstacle through the use of its trapped ion technology, which uses actual atoms instead of artificial qubits. That makes its systems harder and more expensive to build, but the payoff is qubits that are more stable and produce fewer errors. At the end of the day, lower error rates will be necessary to make quantum computers useful.

Like Nvidia, IonQ is also looking to build an entire technology ecosystem. While Nvidia is best known for its graphics processing units (GPUs) that are used to train large language models (LLMs) and run inference, its wide moat doesn't just come from its chips, but the software and networking ecosystem built around them.

IonQ is taking the same approach. Its Clifford Noise Reduction software helps cuts down logical error rates even further, which is critical for scaling. The company has also shown it can convert photons from its trapped-ion systems into telecom wavelengths. This is important because it could allow quantum computers to link up over today's fiber networks and be the building block for a future quantum internet.

To speed up its ecosystem push, IonQ has been active on the acquisition front. It bought Lightsynq to add high-speed networking, picked up Capella to bring in satellite-based distribution, and now has a pending deal for Vector Atomic, which would give it a foothold in quantum sensing. That is a smart way to expand its reach into applications that go beyond computing itself, and it shows the company is thinking long term.

What makes all of this possible is that IonQ is well-funded. In early July, it had $1.6 billion in cash and no debt on its balance sheet, putting it in a strong position to continue to invest and make acquisitions. It also has already built out a 105,000-square-foot manufacturing facility and research center.

A speculative investment

While IonQ holds a lot of promise, at the end of the day, it is a highly speculative investment. It's already burned through $89 million in cash through the first six months of this year, and it's only generated $28.3 million in revenue over the same stretch.

The prize, though, is potentially huge. Quantum computing isn't replacing classical computing anytime soon, but as problems in AI and drug discovery get more complex, there will be cases where only quantum computing can handle them. Nvidia's CEO Jensen Huang recently said quantum computing is reaching an inflection point, which is worth noting because eventually quantum computing and AI are expected to converge.

For investors, IonQ is a classic speculative stock. It appears to have an early technological edge and a credible plan to build a moat, but the timeline for adoption of the technology is uncertain, and the risks are high. Like Nvidia or Amazon in their early days, the stock could be volatile and endure sharp pullbacks along the way, but if IonQ's vision plays out and it becomes the go-to platform for quantum computing, the upside could be enormous.

Should you invest $1,000 in IonQ right now?

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.