When investing in artificial intelligence (AI), growth investors are starting to look beyond the usual areas of data centers, semiconductors, enterprise software and cloud computing. The latest pillar supporting the AI bull narrative is quantum computing.
Ion Q (NYSE: IONQ) has become one of the most influential names driving the quantum artificial intelligence narrative. Let’s take a closer look at the company’s performance over the last year and evaluate whether now is a good time to buy this popular stock.
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According to McKinsey & Company, quantum computing applications could bring up to $2 trillion in economic value by 2035. With this kind of growth potential, it’s natural for investors to identify companies pushing this new technological frontier. On the face of it, IonQ seems to fit the definition of a category leader better than its competitors.
IonQ’s revenue will reach $130 million by 2025, much higher than other pure-play quantum computing companies such as Righetti Calculation and D wave quantum. Considering IonQ’s revenue slope is accelerating, the company has to be ready for an even more explosive year in 2026, right? Well, not so fast.
IonQ has spent more than $4 billion on acquisitions over the past few years. Management told investors that the various assets IonQ is acquiring are designed to build a comprehensive, vertically integrated quantum artificial intelligence platform. Granted, this approach may work in the long run. If IonQ executes on its vision, the company can benefit in a number of ways.
First, bringing various components of the value chain in-house should help reduce operating costs over time. Additionally, as IonQ strengthens its ecosystem, the company may become even more integral to its strategic partners, including cloud hyperscale providers Microsoft sky blue, Amazon network services, and letterGoogle Cloud Platform and AI King NVIDIA.
Although the company’s revenue is growing rapidly, IonQ’s operating margins are low. Last year, IonQ burned $2.4 billion between operating and financing cash flow. The company still had a cash surplus of more than $1 billion at year’s end. How is this possible?
The answer is simple: IonQ has more than $3 billion in shares outstanding. The subtle theme here is that the company took advantage of its rising, hype-driven stock price to issue additional shares at a premium. Management, in turn, used the money to fund the company’s acquisition pipeline and hide what they were doing by driving revenue growth.
