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Any investor who bought $1,000 worth of Nvidia (NASDAQ: NVDA) stock in 2010 and held on for the ride would now be sitting on nearly $400,000!
But Nvidia’s unlikely to make everyday investors rich from today’s starting point. That’s because while its cutting-edge chips are needed to train and run artificial intelligence (AI) systems, Nvidia now has a mind-boggling $3.6trn market cap.
This makes it the world’s largest firm.
Moreover, the company faces increasing competition from its own cloud platform customers, who are developing AI chips in-house.
Therefore, investors looking for the potential ‘next big thing’ might want to consider quantum computing.
A new mode of computation
If quantum computing sounds difficult to comprehend, that’s because it is (or at least it is for me).
As I see it though, it’s like regular computing on steroids. Instead of using boring old 1s and 0s (bits), these computers use qubits that can be 1, 0, or both at the same time.
Confused? Yeah me too, a bit (no pun intended).
Yet most tech giants are pouring money into this area, including Alphabet‘s Google and Nvidia. And it’s easy to see why, given some of the potential use cases for this disruptive technology:
- In drug discovery, there could be rapid breakthroughs in diseases like cancer or Alzheimer’s.
- Design of new materials with superior properties (that is, stronger or lighter).
- Quantum computers could crack traditional encryption methods in seconds, rendering current cybersecurity obsolete.
The stock in question
Unfortunately, most start-ups in this emerging industry are yet to go public. But one fascinating exception is IonQ (NYSE: IONQ), which currently has a $7bn market cap (the same as Nvidia had in late 2010).
The stock has skyrocketed 850% since the start of 2023.
Good commercial progress
Quantum computers are going to have their ChatGPT moment.
IonQ CEO Peter Chapman
The company offers cloud-based access to its quantum computers through platforms like Amazon Braket and Microsoft Azure Quantum. Customers can pay for access to these resources to run their own algorithms and experiments.
IonQ also signs research partnerships. In Q3, it partnered with AstraZeneca to accelerate drug discovery and development, as well as software firm Ansys. It’s also working with Hyundai on self-driving cars.
Quarterly revenue surged 102% year on year to $12.4m, prompting management to raise full-year guidance to between $38.5m and $42.5m. And it expects full-year bookings of $75m to $95m.
Unsurprisingly, IonQ is still loss-making, which adds risk here. It expects an EBITDA loss of about $110m in 2024.
However, it had $383m in cash at the end of September. That’s a cash runway of about three years at the current rate, suggesting it’s well-funded.
Very speculative
Quantum computers aren’t widely used yet because they’re hard to scale and prone to errors. But they’re expected to create up to $850bn in economic value by 2040.
IonQ’s quantum computers use trapped ions as qubits, but competing approaches exist. My concern is that a rival technological breakthrough could render the company’s method obsolete.
Basically, I can’t judge whether IonQ has a durable competitive advantage. And this makes it very difficult to assess whether it has Nvidia-like potential.
With the stock trading at an eye-watering 177 times this year’s forecast sales, I’m putting it in the too-hard category for now. I’m not buying.
