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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Hargreaves Lansdown slashes fees for ISA and SIPP investors - how does it compare to other providers?Hargreaves Lansdown, the UK’s biggest investment platform, has dropped its fees by 40%, to their lowest ever level, for certain customers. Is it a good deal, and how does it compare to other providers?
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
How Corpay is cashing in on expensesFinancial technology company Corpay has found a profitable niche managing corporate payments
-
Drone company Red Cat Holdings sees shares tumbleRed Cat, the unprofitable and inefficient US drone manufacturer is set to slide
-
Why Sezzle's shares may be overvaluedSezzle, the US buy-now-pay-later provider, is resting on shaky foundations. Is it time to sell this stock?
-
MoneyWeek's trading tips - how did they fare in 2024?My tips have yielded a profit and the open positions are proving lucrative, too
-
Should you invest in Trainline?Ticket seller Trainline offers a useful service – and good prospects for investors
-
Harworth doubles profit as revenue soars – should you buy?Harworth, a specialist property developer, is well-aligned with government policies, with revenue expected to rise by over 50% this year, and a further 30% the year after.
-
Bitcoin miner Riot Platforms bleeds money – what happens now?Riot Platforms struggles to make a profit and looks absurdly overvalued. Are troubles brewing?
-
M&S recovery has momentum: will it stick?After years of decline, M&S seems to have turned a corner. But is this just a “dead cat bounce”?
