Is Quantum Computing Stock, IonQ Inc. (IONQ), a Buy?
Headquartered in College Park, Maryland, IonQ Inc. (IONQ) is a leading quantum computing company that provides access to quantum computers with 11 qubits. The company’s leading quantum hardware is currently available on Amazon Web Services (AWS), Microsoft’s Azure Quantum, and Google’s Cloud Marketplace, as well as on its own cloud service.
On October 1st, the company started trading on NYSE after completion of the business combination with dMY Technology Group, Inc. III. IONQ received gross proceeds of about $636 million from the merger deal, which is expected to fund its growth and commercialization activities.
The stock opened at $9.20 on its first trading day and is presently trading 63% higher, at about $15.
With that being said, let’s analyze the company’s fundamental metrics to assess IONQ investment attractiveness after the recent rally.
Quince Market Insights reports that the global quantum computing market is projected to expand at a CAGR of 25.40%, reaching $37.3 billion by 2030. Quantum computers have significantly higher processing power, which can accelerate the computing processes in different sectors. The highest demand for quantum computing is expected to be in the drug discovery and autonomous vehicles fields. In addition, the company sees a $65 billion market opportunity by 2030 (IR Presentation, Slide 4).
IONQ’s Financial Performance & Analysts Estimates
As for now, let’s shift our attention to the company’s S-1/A filing to highlight some important factors regarding its growth prospects.
It is important to note that the company is only in the early stage of development, which is why it generates only a modest amount of revenue. Thus, it recognized revenues of only $218,000 during the first half of 2021.
However, its Research and Development (R&D) expenses have been reported 72% higher year-over-year at $9.1 million, along with a 527% YoY increase in general and administrative costs to $5.8 million. As a result, IONQ’s net loss stood at $17.3 million as of 1H2021.
As of June 30th, 2021, the company had total cash on hand of $27.7 million as well as $636 million in gross proceeds raised from the SPAC deal, while its total debt came in at $4.2 million. The cash burn rate during the first half of 2021 was about $9.8 million, up 64% compared to the 1H2020 value. However, the cash on hand should be sufficient to fund the company’s operations for at least the next 12 months.
In September, IONQ revised its expectations for 2021 contract bookings amid the accelerating need for quantum computing. The company projects these bookings to bring total revenue of $15 million in 2021, an increase of about 3x compared to its previous guidance. It is a relatively optimistic estimate considering analysts’ FY2021 revenue consensus estimates of $5.87 million.
Moreover, the company plans to deliver 2023 revenues of $34 million. However, analysts are more conservative as they expect IONQ to generate revenues of $16.1 million in 2023.
Options Traders Betting On A Rally
During the October 29th trading session, there was a purchase of about 3,450 $13.00 November 19 call options for $2.80 per contract. Moreover, this transaction brings the total number of open contracts to 4,485 (source: barchart.com), meaning that the trade has a total dollar value of about $1 million. I would describe this transaction as a normal bullish bet. At the moment of writing, the stock was priced at $14.80. This level means that if the stock can reach its strike price, it would have an upside potential of about 6% from its current levels. If a buyer of the options is planning to hold the options until they expire, they’d need a price of $15.80 to earn a profit, if we are not including costs and broker commissions.
The Bottom Line
In my opinion, the potential for the company’s growth is immense as the world faces an increasing need for higher processing power. Therefore, I am willing to overlook the current valuation in expectation of significant growth potential.
I believe it makes sense for long term investors to buy and hold shares of IONQ for the foreseeable future in anticipation of this growth.