Aside from artificial intelligence, quantum computing may be one of the hottest tech trends investors are following right now. The quantum computing market holds a lot of promise: In 2023, a McKinsey report homed in on how quantum computing could impact the automotive, chemical, financial services, and life sciences industries, and forecast that the tech could add $1.3 trillion in value to those four sectors alone over the next decade.
Such upbeat outlooks are simply too hard for many investors to pass up, and one quantum computing stock that has been benefiting from all of the hype is IonQ (NYSE: IONQ). Its share price has gained more than 400% over the past year.
That incredible run has many investors wondering whether they're missing out by not owning IonQ stock. But while the company is certainly tapping into an exciting trend, there are three reasons why IonQ stock isn't a buy right now.
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1. Some of IonQ's success is built on hype
One of the clearest examples showing that at least some of IonQ's astronomical share price gains have been unwarranted comes from a recent interview with Barron's, in which CEO Niccolo de Masi said his company is going to be the Nvidia of quantum computing. Specifically, he said:
"I believe IonQ will be the Nvidia player. There will be other people that copy us and follow us; they have always copied and followed us."
Plus, de Masi said in the interview that a tech company could eventually buy IonQ for "hundreds of billions of dollars." That's a stretch at the moment, considering that IonQ's market cap is about $11.3 billion.
There's nothing wrong with de Masi having an optimistic outlook for his company, but investors latched onto the comments and pushed IonQ's shares up nearly 40% in just one day. That type of daily share price movement based on mere talk is the sort of behavior one sees from meme stocks, and is a fairly clear sign that some of the company's gains over the past couple of years were powered by hype.
2. Slow growth and very expensive
Most high-flying tech companies are generating a lot of sales to help justify their expensive share prices. The premise is that if a young company can successfully get customers to pay for its products, then it will eventually be able to turn a profit.
But IonQ's sales thus far have been unimpressive. Revenue in the first quarter was just $7.6 million -- flat year over year. Management is guiding for sales of $85 million for the full year (at the midpoint), which would be twice as much as in 2024, but its revenue growth would have to accelerate significantly over the next three quarters to reach that goal.
One slightly positive sign in the first quarter was that it narrowed its non-GAAP loss to $0.14 per share, down from a loss of $0.19 per share in the year-ago quarter. But that's still a long way from profitability.
The combination of IonQ's share price gains over the past couple of years and its unimpressive sales gains have left its shares trading at an expensive price-to-sales multiple of 231. Even in a market where many stocks are currently looking overpriced, that's a hefty premium to pay.
3. Quantum computing's practical applications are still limited
Many people in the quantum computing world say that real-world use cases for the technology are still years away. For example, Alphabet CEO Sundar Pichai said earlier this year that "practically useful" quantum computers are still five to 10 years away.
There's nothing wrong with investors keeping a close eye on emerging tech trends, but if the practical uses of quantum computing are years away, then now probably isn't a good time to pay a premium for a quantum computing stock.
What's more, even if practical uses for the technology emerge over the next few years and cost-efficient machines can be built to serve those uses, there's no guarantee IonQ will benefit. It faces plenty of rivals in the quantum computing space. Buying IonQ stock right now is essentially a bet on a speculative company in an unproven market.
IonQ is not a buy
It seems that quantum computing's appeal to investors has gotten ahead of its real-world practicality. Perhaps the emergence of artificial intelligence applications over the past few years has spurred an "anything's possible" sentiment in some investors. Still, whatever the reason may be for the market's exuberance about the technology, it will be some time before quantum computing demonstrates its usefulness.
Meanwhile, IonQ's sales are unimpressive, and its share price is expensive by nearly any measure. When you add all of this together, IonQ doesn't look like a great stock to buy right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
