Is IonQ Stock a Disaster in the Making?

IonQ Inc (NYSE: IONQ) is seeing a drop in its stock price following a negative report from the short-selling firm Kerrisdale Capital. The report raises several valuation concerns after IonQ's recent stock price surge.

Kerrisdale Capital announced a short position against IonQ, arguing that even after a significant pullback from its all-time highs, the stock is still trading at an extraordinary valuation of 40 times its estimated revenue for 2026. This level of valuation, according to Kerrisdale, does not make logical sense when considering the substantial scaling challenges IonQ faces, as pointed out by former employees. They suggest that these challenges could hinder the progress of the company’s ambitious goals.

Despite a remarkable annual gain of about 134%, Kerrisdale believes that the stock’s rally has been overly influenced by management's claims regarding technical achievements and commercial milestones. The firm argues that investors are focusing too much on what they describe as “relatively minor successes,” thereby overlooking the significant obstacles ahead.

IonQ currently operates with 80 to 100 physical qubits, and the company plans to scale up dramatically to over 4,000 qubits by 2026 and 32,000 by 2028. IonQ claims it can achieve this ambitious goal through the use of photonic interconnects, yet Kerrisdale has expressed skepticism, stating that commercially viable photonic interconnects are still not within reach. They criticized IonQ for not releasing any performance data pertaining to its photonic interconnect technology.

A year ago, IonQ stated it was ‘on track to finish’ the development of photonic interconnects by 2024. However, executives in the industry told Kerrisdale that the company’s performance remains far below what is necessary for commercial scaling. Further complicating the situation, Kerrisdale suggests that IonQ's recent shift towards quantum networking and the need for additional funding signal an inability to meet earlier growth expectations.

CEO Peter Chapman stepped down from his position last month, having a history of making optimistic claims that didn't align with reality. For instance, Chapman previously stated that IonQ had developed a 32-qubit system in 2020, whereas a former executive revealed to Kerrisdale that the company had only produced an 11-qubit system at that time.

Kerrisdale also pointed out that Chapman’s selling of shares signals a serious concern. They found it troubling that under the terms of the company’s recent share offering, Chapman was allowed to sell up to 2.2 million shares. This, they argue, is a significant warning sign.

The short seller described IonQ as a “cash-burning, highly promotional company,” operating in a rapidly evolving sector, yet valued at unrealistic revenue multiples. With executives offloading shares amid investor enthusiasm and ongoing scalability issues, Kerrisdale warns that IonQ could become a significant issue for unwary investors. In their words, “As reality sets in, IonQ shareholders chasing a quantum leap will find themselves wishing they had stayed in a more stable state.”

IONQ Price Action: As of Thursday, IonQ shares dipped by 3.6%, trading at $21.02, according to available data.

IonQ, stocks, quantum