How IonQ stock gained 18% last month

Actions of IonQ (IONQ 0.54%) up 17.8% in September 2024, according to data from S&P Global Market Intelligence. The quantum computing pioneer has had a mostly quiet month, but its stock chart has skyrocketed on potentially game-changing news over the past week. There IonQ signed a substantial contract with the US Air Force Research Laboratory (AFRL).

Major military contract boosts IonQ’s research efforts

The AFRL deal is a four-year deal worth $54.5 million. It is IonQ’s largest contract since 2024, bringing order bookings to date to a total of $72.8 million.

The company will work with AFRL to make quantum computing more scalable and easier to implement. Quantum computing systems are fundamentally different from digital computers, making it difficult to integrate quantum systems with existing digital infrastructure. In particular, the two organizations will address compatibility with current network infrastructure.

IonQ took advantage of the media spotlight from this announcement, adding plenty of upbeat elements. CEO Peter Chapman reminded investors that IonQ is growing faster than any other pure-play quantum computing company and highlighted the company’s development deals with other groups. The press release looks like a brief presentation of IonQ’s business prospects.

The stock gained 28% over the next two days.

Risky business in an exciting market

The AFRL contract is a big step forward for IonQ, and the quantum computing industry should benefit from this effort to integrate new computing methods with existing technologies. At the same time, it must be said that IonQ remains a speculative investment with uncertain long-term prospects.

The company reported an operating loss of $49 million in the second quarter of 2024 on revenue of $11 million. I know it’s early, but this is not a sustainable business model for the long term.

It works for a while when you have solid cash reserves, and the IonQ does well from that perspective. The balance sheet has $370 million in cash and short-term investments, mostly from the initial public offering in 2021. At the same time, the company is burning through this reserve with $124 million of negative free cash flow per year.

The AFRL contract announcement also had some uncomfortable undertones. For example, the company presented its high-octane growth in narrow context:

“No other publicly traded pure-play quantum computing company has nearly doubled its revenue every year since going public,” Chapman said. This statement excludes all categories of private experts in quantum computing and larger companies in many other business fields. The company does outnumber its remaining rivals, but I think it can be dangerous to ignore the looming shadows of deep-pocketed tech titans.

And the stock itself is a risky business. Share prices are located almost exactly halfway between the 52-week low of $6.22 and high of $16.60 per share. Investors are taking shares in a deeply unprofitable business at 63 times sales.

Please check your risk tolerance before purchasing your first IonQ stub. Quantum computing may be a game-changer, but there are safer and more sensible ways to invest in this emerging market.