Tuesday, 2 January 2024
by Earn Media
You’ve probably heard the old adage that lightning never strikes the same place twice. Investors’ interpretation of the idea means a stock won’t experience two wildly bullish years in a row.
The thing is, lightning actually can and does strike the same place twice. Tall trees and skyscrapers are frequent targets. And in the same sense, a hot ticker can log two big, back-to-back yearly gains. You just have to find the right stock!
Although the 280% gain that shares of IonQ (NYSE: IONQ) dished out in 2023 will certainly be a tough act to follow, there’s no reason to assume 2024 can’t be another bullish year. In fact, there are four specific reasons the coming year could be another winning one for IonQ stock. In no particular order…
Most investors have likely heard the term “quantum computing.” It’s not a stretch to say, however, that most investors don’t truly know what it is or why they should care; the budding business’s leading players haven’t exactly made it easy for the average person to understand.
This is the year that could change, though, in turn changing investors’ view of companies in the business.
Ushering in this understanding will be the practical use of quantum computers in powering technologies that investors are more familiar with, like artificial intelligence (AI), and generative AI in particular. And as it turns out, IonQ is setting up shop in this nook of the artificial intelligence market. In August, the company announced an agreement with Zapata AI “to uncover new potential advantages of quantum computing that could help solve complex real-world business problems,” expanding on its previously forged generative AI partnership.
It remains to be seen exactly what any end product of this collaboration will be or even look like, but the companies are seeking solutions for actual business problems. It’s practical, tangible projects like this that will make IonQ’s technology a real and practical one for interested investors.
The mainstreaming and improved understanding of quantum computing will likely have another beneficial effect on IonQ stock. That is, they will highlight the fact that IonQ is years ahead of many of its peers in terms of practical application with its simpler quantum-computing solution.
In layman’s terms, quantum computers use subatomic particles like ions, photons, or electrons to handle computations rather than the metallic or silicon circuits used in most modern-day computers. This is how quantum computers are infinitely faster than conventional computers.
There’s more than one kind of subatomic particle suited to serve as the basis of a quantum computer, however. IonQ’s trapped-ion approach is one of the easiest ones to utilize and commercialize. And that’s exactly what the company is doing.
This is in contrast to most other outfits developing quantum-computing platforms. Take Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) Google and IBM (NYSE: IBM) as examples. Both are planning to offer utility-scale quantum-computing solutions by 2030, with IBM set to unveil a less powerful quantum-computing platform a bit earlier. The superconducting-based qubits these systems are built around are difficult and expensive to utilize. The same can be said for Microsoft‘s (NASDAQ: MSFT) quantum-computing efforts that rely on relatively rare Marjorana particles.
These alternatives may ultimately provide more computing power than IonQ’s trapped-ion technology can, solving problems with greater precision. But the technology is years away from being ready for widespread commercial use. IonQ is building functioning, commercialized, trapped-ion quantum computers right now that are more than powerful enough. The fact that the company booked $6.1 million in revenue last quarter and lined up another $26.3 million during the same three-month stretch confirms that enterprises and institutions are ready for higher-level computing solutions even if they may be less than state-of-the-art solutions a decade from now.
Speaking of technology, as IonQ continues to refine its trapped-ion quantum-computing systems, the company anticipates another big leap in 2024, setting the stage for a technological “quantum leap” in 2025.
But first things first.
Investors keeping their finger on the pulse of quantum computing have probably heard the term algorithmic qubits, or AQ for short. This is a measure of the number of subatomic particles within a quantum-computing system performing a function at any given time. In more rudimentary terms, it’s a measure of computing power, or speed. IonQ’s most powerful quantum-computing platform — Forte — boasts an #AQ number of 29, although the company expects to produce systems reaching #AQ figures of 35 in 2024.
It’s what’s apt to happen the year after that, however, that could prove game-changing. In 2025, IonQ believes it will be able to offer quantum-computing platforms with #AQ scores of 64.
This is no small milestone. As IonQ’s third-quarter earnings release explains, “The company believes that in reaching this #AQ milestone, its systems will deliver quantum advantage for certain use cases and classical computers will no longer be able to fully simulate an IonQ system.”
Simply reaching an #AQ of 35 is likely to draw attention to the fact that an #AQ score of 64 is within reach.
Last but not least, 2024 could be another good one for IonQ stock simply because tech giants and other quantum-computing start-ups are looking for ways to better position themselves to capitalize on what’s clearly a big opportunity.
That’s not a prediction that IonQ will be acquired (which is a lousy sole basis for owning a stock, by the way). But IonQ doesn’t have to find a buyer in order to benefit from a widespread rush to enter or further penetrate the market. Demand for other developers’ intellectual property alone could be enough to continue pushing IonQ shares up to an even more premium valuation.
Image source: Getty Images.
That’s not a prediction simply pulled out of a hat either. Germany’s investment management outfit VC HTGF’s senior manager (and physicist) Gernot Berger believes bigger tech companies will “increasingly seek strategic alliances, collaborations, and above all, potential acquisitions to solidify their positions” within the quantum-computing arena this year. The Quantum Insider’s Matt Swayne predicts a wave of dealmaking this year simply because “research results have been promising, which is liable to attract big companies that have sat on the sidelines.” IonQ’s CEO Peter Chapman expects the quantum-computing industry’s coming year to look much like last year’s rush to buy and/or build conversational AI solutions once ChatGPT was made available to the masses.
Whatever’s in the cards in this regard, it should create a tailwind for IonQ stock.
Another guaranteed mega-gain from IonQ shares in 2024? No, there are no guarantees when it comes to stock-picking… even when the story is as compelling as this company’s is.
While awareness and understanding of quantum computing are starting to swell, institutional funding of these companies and quantum-computing projects is fading, with financial backers becoming pickier about the projects they want to get behind. Practical revenue potential is increasingly a factor behind funding now. As Quantum Insider’s Swayne notes, quantum start-ups and/or their stocks are just “really freaking expensive.” That’s a hurdle to be sure, made even higher by the fact that IonQ remains in the red.
It’s a dynamic, however, that arguably plays into the hand IonQ is holding rather than working against it. The company’s already got practical, tangible solutions to sell to a market that’s starting to recognize the potential of quantum computing; generative AI is an especially exciting opportunity right now. In this vein, analysts believe IonQ will report top-line growth of nearly 80% in 2024 following 2023’s likely revenue growth of approximately 95%.
It’s an above-average risk to be sure, and the stock will almost assuredly continue dishing out above-average volatility. If you can stomach both, this year may well be another winning period for IonQ’s stock.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.