Could Investing in This Quantum Computing Stock Be Like Buying Nvidia Prior to the Dawn of the Artificial Intelligence (AI) Revolution?
1 week ago
Whenever a new megatrend emerges, it is not uncommon for small, previously little-known companies to suddenly become household names. Underneath the artificial intelligence (AI) umbrella, an area known as quantum computing has started receiving outsized attention.
On the surface, you might think that a hot new opportunity would lead to further conviction in AI's biggest players: Nvidia, Microsoft, Alphabet, or Amazon. But investors sometimes become exhausted with seeing the same names pop up over and over again, which leads them to start digging for new opportunities -- looking for the next big thing.
When it comes to quantum computing specifically, a small company known as IonQ(NYSE: IONQ) has swiftly become somewhat of a darling. While its shares have skyrocketed by 222% over just the last six months, CEO Niccolo de Masi just made a call for the ages -- potentially hinting that generational gains could be in store.
Could investing in IonQ today be like buying Nvidia stock prior to the AI revolution?
The computing industry has gone through many different phases over the course of several decades. The advent of the central processing unit (CPU) was a giant step forward in the development of modern computing. CPUs process instructions through a series of sophisticated architectures and circuits, and play a major role in how efficiently personal computers operate. These chips are powerful general-purpose hardware, capable of managing nearly every sort of computing task. Back in the 1990s, Intel was one of the major players in the development of CPUs for personal computers.
Throughout the early 2000s, graphics processing units (GPUs) grew in popularity in the tech world thanks to their ability to enhance visuals for video games. Their design makes them more specialized -- they use massively parallel processing, which delivers speedy results. But that power is only useful for specific types of repetitive and highly parallel computing tasks -- hence the need for both GPUs and CPUs. While Nvidia was the chief pioneer in GPU development, Advanced Micro Devices has more recently emerged as a contributor to the GPU industry. Right now, GPUs are perhaps the most critical piece of infrastructure powering the current era of computing, as the development and training of generative AI applications require exactly the sort of parallel processing power that these chipsets can bring to bear.
But now, the tech sector is looking ahead to the emerging technology of quantum computing, which processes data in an entirely different way than traditional computers. Setting aside the complexities of how they work and why, suffice it to say that quantum machines can quickly solve certain rare types of problems that would take a classical supercomputer years -- but quantum computing has few real-world use cases today. However, some enthusiasts suggest that it could be the next phase of computing, making it a potentially lucrative and tempting area to invest in.
During a recent interview on CNBC, IonQ's CEO proclaimed that the company is the "800-pound gorilla" in the quantum computing landscape and compared its future to that of Nvidia prior to the AI revolution.
During de Masi's interview, he compared the current state of IonQ to where Nvidia was about 10 years ago. Let's take a look under the hood to see if that comparison is appropriate.
In Nvidia's fiscal 20215, which ended Jan. 25, 2015, the company generated $4.7 billion in revenue and approximately $631 million in net income. At the time, Nvidia's market capitalization was roughly $11.3 billion.
IonQ is a much smaller business today than Nvidia was a decade ago. On top of that, IonQ's cash burn rate has actually increased as its revenue growth shows signs of accelerating. While this could indicate that the company is investing heavily in research and development, it's hard to justify rising losses for a company that has so little revenue to begin with.
Image source: Getty Images.
In my view, comparing IonQ today to what Nvidia was prior to the AI revolution is misaligned. Right now, IonQ stock trades at a price-to-sales (P/S) ratio well over 100. By comparison, Nvidia was trading at a P/S multiple of only 2.4 back in early 2015.
The disparity between these valuation levels suggests that investors may not have understood Nvidia's potential a decade ago. At that time, relatively few onlookers recognized the potential for GPUs' power to be applied constructively in areas beyond video games and other image-related computing. Hence, Nvidia traded at a modest multiple despite its growing, profitable business. Investing in IonQ stock today is not like that -- it carries a much higher premium.
Moreover, IonQ's valuation has multiplied in just a handful of months. Even with a significant pullback, the stock would still likely be overvalued, given the company's low sales traction and high cash burn rate. While there's an argument to be made that investing in quantum computing today could be like making an early bet on the rise of the AI megatrend, I wouldn't do it. There's a lot that still needs to be developed and uncovered before quantum computing reaches the point where it's a practical technology -- and it could take decades to get there.
Unless you have that level of patience with your investments, as well as a tolerance for pronounced volatility along the way, I wouldn't invest in IonQ stock right now.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.
