With many AI stocks having fallen substantially from their recent highs, investors have been seeking the next big technology that can deliver large investment returns. Many people think that quantum computing – using quantum mechanics to enable computers to perform calculations deemed too complex for conventional computer technology – could fit the bill. However, while quantum computing does hold out the promise of exponentially increasing the speed at which computers can carry out tasks, this doesn’t mean that every company in this area is worth buying.
One firm longer on hype than on substance is IonQ (NYSE: IONQ), a quantum computing hardware and software company based in Maryland. Its shares quintupled over the last three months of 2024 thanks to promising recent developments in quantum computing at both Microsoft and Google. IonQ claims that its particular type of quantum computing technology is more promising than versions used by its rivals, and is only a few years away from reaching the stage at which it can be used in a range of fields, such as drug development.
IonQ’s fundamentals look shaky
The sales pitch sounds appealing, but there are several obstacles to progress. Firstly, as short-seller Sahm Adrangi of Kerrisdale Capital Management points out, IonQ has a long record of making big promises and then either taking much longer than expected to meet its targets, or missing them entirely.
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While IonQ has managed to increase the power of its systems over the past five years, it still hasn’t solved the key problem of how to minimise the noise and errors that appear in quantum computing – one of the main barriers to commercialisation. As a result, IonQ continues to lose large amounts of money, with no timeline in sight for becoming profitable, which bodes ill for a company whose shares trade at 60 times 2025 earnings.
IonQ’s problems in reaching profitability are compounded by the intense competition it faces. There are many well-funded smaller companies with similar goals, while some of the biggest names in technology, such as IBM, Google and Microsoft, are also working hard in this area. As Andrew Left of Citron Research points out, these technology giants can invest billions of dollars into research and development, compared with mere millions in IonQ’s case. So it is hard to see how IonQ will be able to keep up with them.
While IonQ’s fundamentals look shaky, the surge in enthusiasm that propelled the company’s share price upwards at the end of last year seems to have cooled. The stock is now down by over half from its high at the start of this year, and is 27% below its 50-day moving average. I would therefore short IonQ at the current price of $25.02, at £40 per $1. I also suggest that you cover your position if it rises above $49.02, which gives you a total downside of £960.
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