Why Quantum Stock IonQ Soared 56.5% In April
Key Points
IonQ was awarded a government contract in April.
The company generates little revenue and loses a lot of money each quarter.
Quantum stocks come with extreme risks and fragile business models.
Shares of quantum computing provider IonQ (NYSE: IONQ) jumped 56.5% in April, according to data from S&P Global Market Intelligence. As a quantum computing research lab, the company has little of a business model today, but it recently won a research contract and expects strong revenue growth this year. It remains unprofitable.
Here's why IonQ stock rocketed higher in April, and what investors should do from here.
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New government contract
The catalyst for IonQ's soaring stock price in April was an announcement that DARPA (the Defense Research Agency) had awarded IonQ a contract for its quantum computing research program. Along with its Air Force research, IonQ is working hard to secure government research funding for this potentially revolutionary computing technology. In the days following the announcement, IonQ's stock began to soar.
IonQ has a working quantum computer, although it is very rudimentary. Along with government research grants, the company sells its quantum services through cloud providers, provides consulting services, and resells quantum hardware to other research labs. However, because errors in existing quantum computers form so rapidly, it is likely that cloud revenue is quite low, as no real-world problems can be solved.
Last quarter, IonQ's revenue was $62 million. On this revenue, it posted an operating loss of $229 million. The lack of profitability should be a glaring red flag for anyone considering investing in quantum stocks like IonQ.
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Buying IonQ and any quantum stock should come with a big warning
IonQ has been a wild stock for shareholders, experiencing huge ups and downs over the last few years. This is likely due to its high short interest, meaning a lot of its outstanding shares are held short by short sellers. When a bullish catalyst occurs, this can cause a short squeeze and drive up the share price.
This is likely what happened in April. If you look at the underlying business, IonQ does not have much to offer shareholders today. Its market cap is $17 billion, even though it barely generates any revenue and consistently posts huge operating losses. Quantum stocks like IonQ are hyped as the future, but that future has not yet materialized in commercial viability.
These are some of the most dangerous stocks to own. A pure story that has no fundamental backing. Any investor thinking of buying IonQ should reconsider. You might lose out on your entire investment if you buy today.
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.