Can IONQ be the Next NVIDIA, and Is It a Buy?

NVIDIA Corporation’s NVDA leading position in the artificial intelligence (AI) chip market has helped the company report consistent positive earnings results in recent years, propelling its share price. Microsoft Corporation MSFT and Alphabet Inc. GOOGL are among NVIDIA’s well-known customers, and the company has plenty of room to run, banking on the boom in AI that many predict will soon become a trillion-dollar market. 

Similarly, quantum computing is an innovative field, but it still has room to grow. One of the major players in this area is IonQ, Inc. IONQ, whose shares have surged 374.7% over the past year. So, can it become the NVIDIA of quantum computing, and is it a promising investment? Let’s explore –  

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Reasons to Be Bullish on IONQ 

The quantum computing market is expected to exceed $1 trillion in value by 2035, according to McKinsey & Company. Quantum computing advancements benefit IONQ’s system, aiding companies like Microsoft and Amazon.com, Inc. AMZN by providing AI researchers with quantum computing models. 

IONQ generates consistent revenues due to its unique linear ion chains in quantum computing, enabling it to surpass 100 qubits and minimize errors in comparison to other quantum computers. The company’s CEO, Niccolo de Masi, is also optimistic about IONQ’s future. He recently said, “I believe IonQ will be the Nvidia player. There will be other people that copy us and follow us; they have always copied and followed us.” 

Issues Troubling IONQ 

Niccolo de Masi recently stated that a tech company might purchase IONQ for “hundreds of billions of dollars," which seems far-fetched given the company’s current valuation of $9.668 billion. Nevertheless, his optimistic remarks led to significant gains in IONQ shares. However, these gains are driven more by hype than by fundamentals. 

When discussing fundamentals, IONQ’s first-quarter revenues were unimpressive, and the company has yet to achieve profitability. The revenues of $7.6 million in the first quarter remained flat year over year, and although the non-GAAP loss of $0.14 per share narrowed from a loss of $0.19 per share in the same quarter last year, it is still a significant distance from profitability. 

Could IONQ Be the Next NVIDIA? Should I Invest Now?  

NVIDIA, since its initial public offering (IPO) not only reported revenue growth but also improved profit margins. Before venturing into AI, NVIDIA was already a solid player in the video gaming market. And now, with demand increasing for its Blackwell chips and CUDA software, its share price is well-positioned to climb northward.  

However, real-world applications of quantum computing are still years away, lengthening IONQ’s path to profitability and increasing risk. Therefore, it’s premature to say that IONQ is the next NVIDIA (read more: Is NVIDIA's Rise in Value a Sign to Invest in NVDA Stock?). 

Despite profitability concerns and quantum computing being a speculative field, IONQ’s revenues have witnessed a CAGR of 170% since 2021. Its revenues grew rapidly due to the ion trap architecture’s scalability and competitive edge, attracting risk-tolerant investors to consider buying IONQ stock. Presently, IONQ has a Zacks Rank #2 (Buy) and its expected earnings growth rate for the current year is 69.9%. 

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This article originally published on Zacks Investment Research (zacks.com).

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