We'd Only Invest in IONQ If THIS Happens

Summary

In this video, the speaker analyzes the overvaluation of IonQ, a quantum computing company, highlighting the risks for newbie investors. They emphasize the importance of strong revenue growth over hype and explain how IonQ's current valuation far exceeds its fundamentals. The speaker discusses the company's customer concentration, market performance, and the broader quantum computing sector's hype. They suggest that IonQ's stock should only be considered at a lower price-to-sales ratio and warn about the dangers of sector speculation, urging investors to look beyond the hype and focus on real value.

Takeaways

• 😀 The biggest mistake newbie investors make is investing in stocks rather than in the actual companies behind them.
• 😀 Ion Q has strong revenue growth but faces significant risks, such as heavy customer concentration, with 70% of their revenue coming from just two clients.
• 😀 Ion Q's stock price is extremely overvalued, trading at a price-to-sales ratio of 266, far above the average ratio of tech stocks (around 6).
• 😀 The hype around quantum computing has led to inflated stock valuations, with companies like Ion Q, Palanteer, and others seeing their stocks pushed up by sector excitement rather than solid fundamentals.
• 😀 Revenue growth is the key indicator of progress in quantum computing, but despite some breakthroughs, many companies, including Ion Q, have not yet demonstrated sustainable market traction.
• 😀 The founder's track record and promises, like delivering the world's most powerful quantum computer or rack-mounted solutions, have not materialized as expected, which hurts credibility.
• 😀 At their current valuations, Ion Q's stock price would be much lower if priced similarly to other overvalued tech stocks like Palanteer or Nvidia.
• 😀 Many quantum computing companies are overvalued and still have limited proven revenue, with examples like Regetti and D-Wave showing inconsistent growth.
• 😀 Broken promises and missed expectations make it difficult to trust the growth stories management teams spin, particularly for companies like Ion Q.
• 😀 While Ion Q is currently overvalued, the stock could be considered for investment if its price-to-sales ratio drops below 18, meaning its fundamentals must align with its valuation.
• 😀 Despite the volatility, Ion Q has shown a return of 269% since its 2021 SPAC debut, but it comes with significant price fluctuations, which may be a warning for less experienced investors.

Q & A

What is the biggest mistake that newbie investors make according to the speaker?

The biggest mistake is investing in stocks without understanding the underlying companies. Investors often get caught up in the hype surrounding stocks, even when the company's fundamentals don't support the stock price.

What does the speaker warn about investing in IonQ stock?

The speaker advises extreme caution when investing in IonQ, as it is highly overvalued based on its current stock price relative to its fundamentals. The company has strong revenue growth but faces risks such as heavy customer concentration.

What is the comparison made between quantum computing and high school sex meant to illustrate?

The comparison highlights the long-standing hype and unfulfilled promises around quantum computing. While many claim to be working on it, few are actually making significant progress, and the technology remains immature.

What does the speaker emphasize as the most important factor in assessing a company like IonQ?

Revenue growth is considered the most important indicator of progress, especially when it comes to emerging technologies like quantum computing. Even if the technology isn't fully realized, strong revenue growth can signal that a company is making advancements.

What is the issue with IonQ's customer base?

IonQ's customer base is highly concentrated, with around 70% of their revenue coming from just two customers. This creates a significant risk if one of these customers decides to leave, and it also shows that other companies aren't adopting IonQ's products at a rapid pace.

What is IonQ's current price-to-sales ratio, and how does it compare to industry benchmarks?

IonQ's price-to-sales ratio is 266, which is extremely high compared to the NASDAQ average of 6 and the average of 6 in the speaker's tech stock catalog. The speaker considers anything above a ratio of 18 to be overpriced.

What is the significance of the comparison between IonQ and Palantir?

The comparison illustrates that IonQ's stock price is highly inflated. If IonQ were valued similarly to Palantir, its share price would drop to around $14, which is much lower than its current price of around $45.

What is the speaker's opinion on the quantum computing sector as a whole?

The speaker believes that the quantum computing sector is currently overhyped. Despite the technological potential, the valuations of companies like IonQ are driven by sector hype rather than actual achievements or revenue growth.

Why does the speaker caution against mergers and acquisitions (M&A) in the case of IonQ?

The speaker warns that IonQ might resort to acquisitions to compensate for failing to meet ambitious revenue targets. However, M&A often fails to generate the expected synergies, making it an expensive and risky strategy for growth.

What price-to-sales ratio would make IonQ a more attractive investment for the speaker?

IonQ would become a more attractive investment if its price-to-sales ratio fell to 18 or below. This would make the stock price more in line with the company's future potential.