Bubble Warning: Don't Buy IonQ Stock Until It Falls to This Price

Investors haven't been able to get enough of quantum computing stocks in recent years, and IonQ (NYSE: IONQ) has been a big winner thanks to that trend. The stock has increased by more than 40% over the past year and by roughly 1,000% over the past three years.

The company is building quantum computers for commercial applications. Its CEO has gone so far as to state that its ambition is to dominate the quantum computing market in a similar way to how Nvidia has dominated the market for artificial intelligence (AI) accelerator chips.

But with IonQ trading at over $50 per share, I wouldn't touch the stock with a 10-foot pole. Here is why IonQ doesn't make sense to buy today, and my view on a price at which the stock might begin looking more approachable.

IonQ's valuation is an implosion waiting to happen

In one sense, the market's optimism about quantum computing is totally understandable. In some specific applications, quantum computers can be exponentially more powerful than the classical computers in use today, giving them exciting potential in AI and other computing-intensive applications. However, the technology is still very young, and one of the core issues with it is that quantum computers are finicky, and they're massively more error-prone than traditional computers. The quantum error correction and mitigation problems are among the central challenges facing every player in the space -- and until they are surmounted, these machines will hardly be practical for real-world uses.

IonQ management is only anticipating revenues of $106 million to $110 million for 2025, yet its market cap is $18.3 billion. That gives it a price-to-sales (P/S) ratio of 166, making IonQ one of the most expensive stocks on Wall Street.

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Such a high valuation leaves plenty of room for the stock to fail if things don't go well, and there are numerous ways things could go wrong for IonQ. For instance, it's unclear how long it will be before quantum computers become broadly usable, what IonQ's eventual market share in that niche will look like, and whether the company will turn a profit anytime soon.

Don't buy until the stock reaches this price

IonQ isn't necessarily an unbuyable stock, but the price should adequately reflect the risks involved in such a speculative investment.

Even Nvidia -- which IonQ's CEO has repeatedly compared his business to -- trades at about 20 times its estimated 2025 revenue. To slide to that valuation, IonQ's market cap would have to drop by about 88% to $2.2 billion. Assuming the outstanding share count stayed about the same as it is now, that would price IonQ shares at between $6 and $7.

One might argue that IonQ should be priced at a lower premium than the top AI stock, but it would at least be significantly less risky to buy at that valuation. It may seem unlikely that IonQ could fall that far, but its shares traded in that range as recently as the summer of 2024.

Who knows what could happen if the broader market, following a massive tech bull market since early 2023, begins to stumble. Stock prices can behave irrationally for months or even years. However, business fundamentals tend to prevail in the long run, and IonQ is flashing warning signs at its recent share prices.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ and Nvidia. The Motley Fool has a disclosure policy.