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IonQ (NYSE: IONQ) is a leader in quantum computing research. This technology applies the principles of computer science, physics, and mathematics to produce computers that can solve problems exponentially faster than standard computers.

That could potentially supplant artificial intelligence (AI) and eventually lead to a bull market backed by this technology. Unfortunately for IonQ investors, the company might not be able to deliver significant investor returns despite its advances. Here’s why.

IonQ and its technology

As previously mentioned, quantum computing is more powerful than traditional computing. Current computing technology operates on a binary code, meaning it stores all information as zeros or 1s. In contrast, quantum computing can store information as zero or 1 or all points in between, dramatically boosting this power.

Quantum computers measure power in basic units called qubits in much the same way traditional computing power is measured in bits. To this end, IonQ recently took its Forte quantum system to what it calls “#AQ 35,” a term IonQ developed to define the power of its quantum system.

This was an upgrade from last year’s #AQ 29 and places IonQ on the way to developing #AQ 64. Each #AQ increases computing power exponentially. Hence, the #AQ 35, which has a qubit count of 36, can consider over 34 billion possibilities at the same time.

And that pales in comparison to the power of the #AQ 64, which can take into account more than 18 quintillion possibilities simultaneously (that’s 18 followed by 18 zeros).

Still, despite that massive increase in power, one obstacle to commercial viability is the fragile nature of qubits. A qubit’s environment can easily undermine coherence, meaning developers must be meticulous about hardware construction and error corrections to make such technology useful commercially.

The state of IonQ as a company

Moreover, the instability is not limited to qubits. In 2023, the company’s $22 million in revenue rose 98% from the previous year. Nonetheless, costs and expenses totaled $180 million, over eight times IonQ’s revenue and an 85% increase from year-ago levels. Consequently, the company lost $158 million in 2023, well above the $49 million loss in 2022.

Also, the company holds only about $365 million in cash and short-term investments, giving it about two years of liquidity at current loss rates.

The financials might somewhat reflect in the stock’s volatility. Although IonQ’s shares have risen 90% over the last year, all of that increase occurred last spring. And it currently sells at about a 50% discount from its high last August. Even after that drop, its price-to-sales ratio is still about 90, an expensive valuation by just about any measure.

Considering how fast costs and expenses rose with revenue, investors cannot expect growth alone to improve its financials. Thus, shareholders should expect the company to issue more debt or additional shares in the foreseeable future, moves that will weaken the balance sheet or dilute share values.

Investing in IonQ

Considering the state of IonQ stock and its potential, it likely belongs on a watch list rather than in a portfolio. Admittedly, the prospect of supplanting AI through exponential gains in computing power could be lucrative for investors under the right circumstances.

However, IonQ will probably need to more directly tie this technology to specific commercial applications to attract more investors. It also needs to reduce the increase in costs and expenses and develop a viable path to profitability. Thus, investors should consider investing in the quantum computing stock only if it begins to show meaningful productivity gains for its customers.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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