Is IonQ stock a buy now?

Many tech stocks have gotten a boost in the past year thanks to the rise of artificial intelligence. But AI is not the only technology with the potential to transform society. The emerging field of quantum computing also opens up immense possibilities.

Quantum computers use subatomic particles to perform complex calculations at speeds beyond the capabilities of conventional computers. That’s why the quantum computing company IonQ (IONQ 0.96%) saw its stock explode to a 52-week high of $21.60 last year.

Since then, the stock has fallen steadily, hitting a 52-week low of $6.22 on Aug. 5 during the recent stock market selloff. Does the price drop signal an opportunity to pick up the stock?

The answer to this question is not simple and also depends on your investment approach. Read on to find out what factors to consider when investing in IonQ.

IonQ sales growth

IonQ possesses several attributes that make it an attractive investment, as evidenced by the company’s Q2 earnings results.

For example, IonQ grew Q2 revenue by 106% year-over-year to $11.4 million. The firm expects the superb sales growth to continue in Q3, forecasting revenue of at least $9 million, up from $6.1 million a year earlier.

Additionally, IonQ’s Q2 balance sheet was excellent. Total assets were $517.4 million, of which $369.8 million was in cash, cash equivalents and short-term investments. Total liabilities were $54.2 million.

The company’s revenue growth is due to the acquisition of clients such as the Applied Research Laboratory for Intelligence and Security (ARLIS). ARLIS chose IonQ to develop a quantum computing system as part of the US government’s national security efforts.

Another example is the company’s contract with the US Naval Research Laboratory, which said IonQ’s systems were able to complete calculations that used to take months in just a few hours.

Additional customers include Hyundaiwhere IonQ is helping to develop self-driving cars, and Oak Ridge National Laboratory, which is using IonQ to help modernize the US power grid.

Other IonQ strengths and weaknesses

Its customers’ gains are due to IonQ’s impressive technology. The firm uses ions captured by lasers to produce simultaneous calculations, as opposed to the sequential method used by conventional computers. This is what allows quantum computers to operate at incredible speeds and handle complex calculations that are not possible with today’s computers.

Moreover, IonQ’s approach leads to lower calculation errors compared to competitors, according to the company. Its systems are also accessible through major cloud computing companies, providing convenience to customers.

However, despite its successes, the company is not profitable. Net loss in the second quarter totaled $37.6 million. Many tech companies operate at a loss for years because they sacrifice profit to grow their business as quickly as possible, which is the case with IonQ.

The firm increased research and development (R&D) spending in the second quarter from $19.9 million in 2023 to $31.2 million. This is a critical area for the company to invest in, given that IonQ is building new technologies in the field of quantum computing.

It has also increased spending on sales and marketing as it works to land more customers. This expense increased to $6.1 million in Q2, up from $3.6 million a year earlier. The cost makes sense because IonQ needs sales and marketing to drive business growth.

After all, IonQ’s technological and customer successes are what make the company a compelling investment. In fact, the consensus among Wall Street analysts is an overweight rating, with an average price target of $10 on IonQ shares, suggesting their belief that the stock will rise.

Why investing in IonQ stock is a challenging decision

Given the many positives, what about IonQ, a tough investment decision? A key reason is that the entire quantum computing industry is still in its infancy. Whether IonQ’s technology will be a long-term customer favorite is unknown, making the stock highly speculative.

Another factor to consider is IonQ’s short life as a public company. Its IPO took place in 2021. IonQ’s limited public history makes it difficult to assess how it may perform over the years as the quantum computing industry evolves.

These factors contribute to IonQ stock experiencing a lot of volatility. This is proven by its high beta of over 2.

As the beta indicates, IonQ shares are particularly sensitive to the performance of the stock market in general. So when the market experienced a selloff this month, IonQ stock was hit particularly hard.

Of course, the opposite can also happen. With the potential for the Federal Reserve to cut interest rates in the future, IonQ stock could be poised for a rally.

As IonQ stock suffers from high volatility, investing in the stock is not for the faint of heart. This is where your investment approach comes into play. You should only consider buying IonQ stock if you find growth stocks attractive, and even then, only if you have a high risk tolerance.