Better Quantum Computing Stock: Microsoft Vs. IonQ

Quantum computers promise to revolutionize computing as we know it, making it a promising industry to invest in. For example, AlphabetGoogle’s quantum computer completed a complex calculation in six seconds that would have taken 47 years with a supercomputer.

This demonstrates the quantum edge, a term that describes when quantum machines can outperform today’s computers. Quantum computing uses subatomic particles, called qubits, to perform many calculations simultaneously, speeding up the sequential process of a traditional computer. But while Google’s demo was impressive, these machines are far from everyday use.

However, several companies are racing to make this happen. Two of the most prominent are veterans Microsoft (MSFT) and newcomer IonQ (IONQ). The former is a technological behemoth, but the latter benefits from its exclusive focus on quantum computing.

In this David vs. Goliath comparison, which is the best investment in the emerging field of quantum computing? Let’s look at each company to arrive at an answer.

Microsoft’s approach to quantum computing

Microsoft began working on quantum computers in the late 1990s, trying to build quantum systems capable of reliably scaling. This reliability is critical because qubits are inherently unstable. Any external influence, such as an increase in temperature, can disturb a qubit, causing calculation errors.

The company continued a decades-long quest to overcome this problem. Today, the conglomerate brings together several components to provide a reliable quantum system. It combines the Azure cloud computing platform, software developed for quantum computers and quantum hardware from partners such as Quantinuum and Atom Computing.

Earlier this year, Microsoft combined its software with Quantinuum’s hardware to improve error rates by 800 times. In September, Microsoft and Atom Computing partnered to build “the world’s most powerful quantum machine,” according to the companies.

Microsoft does not disclose revenue related to quantum computing. In fiscal 2024, which ended June 30, the conglomerate’s quantum computing business fell short of its research and development efforts, suggesting that the technology’s revenue contribution, if any, is not significant to Microsoft’s business at this point.

This makes sense. After all, Microsoft’s bread and butter is its Azure, Windows, and Office products, which have helped it reach $245.1 billion in sales in fiscal 2024, up 16 percent year-over-year.

IonQ’s quantum computing progress

Compared to Microsoft, IonQ’s history in quantum computing is short, with the company founded in 2015. Even so, its quantum offerings generate rapidly growing revenue.

IonQ posted sales of $11.4 million in the second quarter, up 106% year-over-year. For the full year, IonQ expects to reach at least $38 million in revenue, up 73% from 2023’s $22 million.

The company is successfully growing revenue as its quantum computing technology has attracted customers such as Oak Ridge National Laboratory, which uses IonQ technology to improve the US power grid, and Hyundaiwhich is developing autonomous vehicles with IonQ quantum computers. The firm is even partnering with Microsoft, making its quantum hardware available through Microsoft’s Azure platform.

In an attempt to achieve the quantum edge, IonQ’s technology uses ions for its qubits. This, along with its specialized hardware, allowed the company to achieve 99.9% accuracy in qubits.

In an effort to further increase accuracy, IonQ switched to using ions from the element barium instead of ytterbium, the first in the industry to do so. This change will be integrated into its hardware starting next year.

Deciding between Microsoft and IonQ shares

Technologically, IonQ appears to have produced more tangible quantum computing results than Microsoft, as evidenced by its revenue growth and technical achievements. Even so, the company is not profitable. In Q2, IonQ suffered a net loss of $37.6 million.

Meanwhile, Microsoft is increasing profits. In the fiscal fourth quarter ended June 30, the company generated net income of $22 billion, up 10% year over year. This is just one more reason to favor Microsoft over IonQ.

Another is the risk of the investment. IonQ’s lack of profitability means that if it can’t maintain its great rate of revenue growth, it could struggle financially, while Microsoft offers a stable business.

Additionally, industry forecasts indicate that the current phase of quantum computing, where the technology is in its early stages of development, will last until at least 2030. That’s when the quantum advantage is expected to finally begin to tip the scales away from traditional computers. Many years before that happens, there is no telling who will succeed.

Microsoft also pays a dividend, which the conglomerate raised by 10% in September to $0.83 per share. IonQ does not pay dividends.

Moreover, from a stock valuation perspective, Microsoft is the superior choice. Since IonQ is not profitable, let’s look at the price-to-sales ratio (P/S ratio), which reveals how much an investor has to pay for a share of a stock relative to its earnings.

Data by YCharts.

IonQ’s P/E ratio has fallen since the beginning of the year, but compared to Microsoft, it’s still expensive. Therefore, Microsoft’s lower P/S multiple makes it a better value.

Since the quantum computing industry is probably some distance from achieving the quantum edge, Microsoft is the best investment in quantum computing, and while you wait to see how the industry shakes out, you can collect passive income.