All – for those of you who do NOT know, I have worked in the tech industry for about 27 years now. I have spent many late nights in a server room in the 2000s migrating servers to virtual servers. So I understand the beginning of “the cloud”. You are also then talking a lot of virtual servers on “fabric” like servers with fault tolerance with drives and load balancing with clustering and load balancing. RAID 5, all that fun stuff with MSA storage, prior to the fun SAN stuff of today.
I bring this up because a buddy of mine asked me to take a look at IONQ – I did about 6 months ago, and I still have questions. The “limits” of my technology background stop when you talk about hardware design – something many of you maybe went to Carnegie Mellon for in the western part of my state. As best I know about that, you are making circuits smaller and smaller over the last 40 years or so, according to Moore’s law to approximately double processing speed every 18 months. Around 2011 or so, I was watching Michio Kaku late one night (he’s a famous physicist and futurist, and he was talking about the end of Moore’s law coming. Meaning – he was predicting by 2022 that Moore’s law would no longer work, as we are hitting the high end of what we can do with standard micro-computer engineering. Essentially, it boils down to heat. With that in mind, Moore’s law hasn’t been perfect, but an approximation.
In my years in leadership/management of IT, you can also see this rule working overall with technology – perhaps you see hard disk space needs double every 18 months or so, so it helps you understand capacity needs for storage and scalability. You can also see it with the advancement of software that needs more and more RAM. Databases need to query more and more data and can slow unless upgraded to the latest hardware. Even backup capacity needs to be taken into account with this. So when you plan for a hardware upgrade of your equipment – rather than spending millions on CapEx for a 5 year plan which can be archaic by year 3, many companies have chosen to migrate their data centers virtually using things like Amazon Web Service (AWS) and Microsoft Azure. I’m sure there’s other companies I’m missing here, but those are the big 2 I know about.
Everything with IT is trying to do more, each year, with decreasing costs. If you are thinking IT, you are dealing with your CapEx of buying new equipment, maintaining it, sunsetting it – migrating it – but you are also thinking about the cost of the people running it. If you are a small to mid-sized company, with maybe 50-200 servers, you can start to think about the days where you close down your local data center and offload non-critical systems to the “cloud”. What you do then is instead of paying CapEx for your hardware, you are paying for the hardware as you need it – to support the processing/RAM/disk needs where someone else is hosting it. As you need more, you pay more.
This entire model could be thrown upside down if Quantum Computing is to take effect. The company, IONQ, does “trapped ion computing”.
The problem here, is my guess they don’t even teach this at Carnegie Mellon because it has been theoretical for years. Part of me wants to jump into this and invest. However, there’s a gut feeling I have that it’s not ready for prime time – yet. Let me tell you what I had read about the concepts of quantum computing maybe about 5 years ago…
Essentially, it can do the work of what the world’s largest super computers can do in 40,000 years, in a mere second or two. If you consider how encryption works, and how it’s cracked, you can then see that IF true quantum computing – as it was described to me – was actually working, you could essentially break every military encryption in seconds. This has national security implications of perhaps taking down every satellite, making tanks shoot at each other, and perhaps taking nuclear subs to the bottom of the ocean. This is a guess – I have no knowledge of it – and I have to be careful how I comment based on where I work, but the point is that IF true quantum computing, as I learned it to be, was here, my guess is that it would replace everything inside of 2-3 years.
When my buddy first told me about the company, I thought – “isn’t that cute, a company trying to do this”. While it has been theoretical, it has also had the 5-10 years away for quite some time. In my tech circles, no one is really talking about this. Given my academic background in cybersecurity – this is also not discussed as an imminent threat.
So what to make of it? When you look at the books – or what I can see of it, I see a company with a $5 share price that spiked to $36 one week and has retraced ever since.
When you see charts like this of a speculative stock/industry, one can be led to believe that rumors started Oct 2021 that they were close to a breakthrough and some sort of big company announcement was coming. Then, an announcement comes that was underwhelming and the sell off starts. You could also think “share dilution”, but that’s not the case, it seems, as the initial funding of this appears to be at $600m of stock issued, perhaps through the IPO. Don’t quote me on this, as I don’t know exactly how the funding started, but the share count has only gone up minimally in 2 years since company inception.
My thoughts were – that if a company was thisclose to cracking quantum computing, surely they would have big time funding and revenues. First thing I saw was sales of $6m last year and $2m the year before. Meh. What are they looking at here, a $30m market cap? I then saw their assets and how they had roughly $500m in assets. What? Appears of a cash burn rate of $9m a month if you avg it out, and with this, you see only $27m in assets that are what I might consider a data center. A VAST amount of their resources is cash, and what also appears to be commercial paper or bonds. Meaning – they raised stupid levels of cash, and figured they didn’t need all this cash for some time, so let’s put it in something low risk to grow it a little. Further down, it looks like a lot of that is invested in perhaps short term treasuries or the like. OK…
My buddy also said the company doesn’t need to raise any more cash, as it will start to turn positive cahs flows on contracts and make money in the future. But here, I would look at the income to understand how their sales are going…
If a company is sitting on half a billion in cash, and already has world class-leading technology that works, I’d be expecting probably $10b in sales per year. Here’s what you see on IONQ’s Yahoo page – going back 3 months.
You are seeing some sales starting, but what has been announced are contracts in the single millions per year. One of these is for the Air Force, so you can see the military finding some value in taking a look at this. Previously, you have seen small contracts with Azure and AWS as well. If you were them, it might be worth using that, for now, to supplement your existing capabilities to scale out, perhaps use it for some overflow?
So my questions are to people smarter than me, who might be reading this. Please help me understand some nuts and bolts here. I’ll be reading up on this company over the next few weeks/months and use your answers to try and put some of the pieces together….
- Is IONQ actually quantum computing as I understood it 5 years ago, or is this more or less some sort of super computer of super computers with SOME aspects of quantum computing?
- IF this is actually what is thought of as quantum computing, why does their books only reflect $27m in what appears to be a data center? Would it not be some really expensive data center with teams upon teams of PhDs?
- Who is the industry leader in quantum computing – and is this company in that short list of leaders?
- How far away, are we, really – to REAL quantum computing which might do what I said above?
- IF quantum computing is really done the way we understood it to be done, isn’t it a national security threat?
- Does anyone understand the business case for use here? It seems this is more or less being used for some processing time (qbits) from AWS/Amazon to test capabilities.
- Does anyone have the ability to “dumb down” what IONQ is currently doing VS what “quantum computing” as I know it is? Meaning – there is obviously either a gap here in tech or market understanding what they are. You cannot have $6m in sales TTM IF this is indeed quantum computing. Either they are not prime time yet or market is not understanding value.
- Mkt cap is about double equity. Amazon is roughly 10x and Apple is 38x. A LOT of that equity is cash/bonds for IONQ – maybe 90%? For apple it’s like 2.5% and for Amazon it’s like 16%. What this is telling me is that the company may be several years away from being prime time and they are being good stewards of the cash given to them. While we have a burn rate of $9m a month, it’s like 5 years of runway at current burn rate. Idea here is more and more contracts start to build up to then turn cash flow positive. Am I seeing this wrong? This doesn’t seem like something that is imminent to break out, but perhaps is 2-3 years away from being cash flow neutral and maybe 4-5 years away from making a profit. Anyone know anything different?
If anyone has good answers to these questions – feel free to comment below or send me an email at NathanFisher47@gmail.com with IONQ in the subject. I try to get back to all emails….
November 23, 2022 at 4:16 pm
My background is in computer science and math. I’m a PhD candidate, though I’ve never studied quantum computing specifically so take this comment with a grain of salt. Having said that, I am doubtful that quantum computing’s claimed improvements in time complexity will pan out in reality. If you took classical mechanics, you know that a certain amount energy is needed in order to do a certain amount of useful work. Consider unstructured search in the physical sense: Suppose you have ten boxes, and one of them contains a shiny new gold eagle. In the worst case, how many of those boxes must you open (or examine in any way, shape or form) in order to find the coin? If I said “about two boxes”, you would think I’m mad.
I’m not a physicist and I’ve never studied quantum computing, so again don’t take this comment too seriously. Whether the quantum model of computing has any useful applications remains to be seen.
November 23, 2022 at 4:32 pm
Also, one can certainly understand why the military, defense contractors, aerospace companies and so forth would want to explore the possibility of quantum computing, even if it’s unlikely. As an investor though, one has to consider whether or not a quantum computing company is likely to create an actual product that they can sell for money. Just because some company gets a contract with the military, microsoft, airbus or whoever doesn’t mean very much by itself.
November 23, 2022 at 10:55 pm
You are the kind of guy I’d probably have been friends with in college drinking coffee at Dunkin’ Donuts for 3 hours asking ‘what if’. Your box question then goes into the different types of things to look – Monte Carlo, bubble sort, binary sort, etc. so I appreciate the question even though I haven’t looked in those books for decades lol.
I know IONQ is doing some impressive things, and with $500m liquid and massive backers and the right customers (education, military, Amazon, etc) there is some promise here.
Truth is – since I’ve been a kid my dad would talk to me me about quantum types of stuff. He would read hawking and tell me all about it at very young ages. We’d talk for hours about black holes, gravity, Einstein, quarks, how light is a wave and a particle – you get the idea. And none of this also means I took any of those classes at cal tech to understand this beyond a topical level. One guy who reached out to me gave me an overview of quantum entanglement and I sort of get it at a novice level.
IONQ went from I think 21 qubits to 25 in 10 months. That is rapid progress. The industry in less than 10 years could be a trillion dollar industry.
If I were to speculate on the next ‘big thing’, this would be it. But I’m also not selling kidneys to buy it. I am a responsible speculator – in that I feel this may be a 5 year hold and may have a 10-100x, or it could go to zero so I’d probably pull a rip cord at 50% loss and watch for a bottom to get back in if I still like the story.
From what I understand – they are also trying to train programmers for the devices they have built and sold. So you can actually use these quantum computers now to solve particular problems. From what I understand – the application may not necessarily compete with an AWS backend of processing, but rather be used to solve particularly hard problems. Think of the combinations of compounds that could go into drugs and simulations about how they might work. In my particular case, I think the biggest application is battery chemistry. If we can make batteries a lot more energy dense using different compounds, metals, etc. we can seriously change the world. So much energy is coming here from the sun that we just can’t store, or some of it we store, but is costly and may not be energy dense.
I suspect neither one of us can predict they will be successful within 10 years. I have asked indirectly for videos to explain this to common people better, but I think at this point they are happy to have the propeller heads that are in the know geek about it. But this is a spec play I’m looking to hold for 10 years. If you knew tesla or Amazon would go ballistic 15-20 years ago, would you not have thrown $1000 at it?
The share price is down a ton since its peak. I’m very ok with this, as I believe this was a spac with a lot of hype and then they tightened fed policy and markets all went lower. This is the kind of tech that I could see making it through a depression level event, as they have 5 years of funding it seems given their existing burn rate.
I hope this story unfolds faster rather than slower, but I really like the narrative. I also like how they have a partnership now with Hyundai on battery tech research.
November 26, 2022 at 1:25 am
I chose unstructured search because it illustrates clearly that you can’t “cheat” the process. Accessing a memory location or evaluating a function requires electric and/or physical work, just like opening a box. Grover’s algorithm has O(sqrt(n)) worst-case complexity. It would practically be cheating physics and so I am doubtful that such an exotic thing as a O(sqrt(n)) unstructured search can be made to work in practice.
I advise caution.
November 26, 2022 at 1:35 am
Let me put it this way, I would be truly impressed and humbled if someone could demonstrate a general-purpose O(sqrt(n)) unstructured search working in practice.
November 26, 2022 at 2:21 am
Take a look at ionq. I mean a deep look. They already have devices they have made and sold. This is not on a white board. They are actually made. As I mentioned – I have a speculative position in them. A 10 year hold perhaps. They have $500m liquid and have a burn rate of $9m per month. Sales have started now, so the first objective here I’d see is to stop the bleeding and become profitable. But they have about 5 years of funding on hand now, it appears. And – their backers and partners are huuuuge. This isn’t a $2m biotech startup. It’s a company that actually is producing units now they are selling to customers.
What you might want to consider is this processing is different than typical processing with 1s and 0s. So a lot of what you know might be thrown out the window with this – as these computers may be doing specific types of tasks better than traditional computers, but it might not be as good as regular processors with other tasks. My specific interest here is the Hyundai venture they have for battery chemistry announced on their site jan 2022. I want to see how that is going.
November 26, 2022 at 6:13 am
If that’s the case, is there any evidence their machines are more performant than conventional machines in a given application? That’s really what I would be paying attention for.
November 26, 2022 at 3:06 pm
I think it’s worth a deep dive on their page for you to look at. When all of the big tech firms have ionq’s tech plugged into them, you have to wonder what is going on. At this point, they have working devices and speed is increasing quickly. From Feb 2022 to now, I believe they went from 21 to 25 qubits. I think a number of interest with qubits is around 45 – but you have to look for yourself who is using them and to what extent.
Remember, I have mentioned a few times this is a SPECULATIVE investment I have. Meaning – I realize this can go to zero and it’s a SMALL portion of my portfolio. There is RISK with this, but due to how far along they are, this is not a discovery risk of ‘if they can do it’. The risk now is ‘how good can it get’.
Us plebes, no matter how many degrees we have, cannot know this. The dude running this is pretty much THE leader in this form of quantum computing in the world.
So. I’m not going anywhere. I understand the risk/reward here. What is very much of interest is to warn people to not go ‘all in’ on something like this – because it hasn’t been proven at speed and at scale.
November 27, 2022 at 5:24 pm
“When all of the big tech firms have ionq’s tech plugged into them, you have to wonder what is going on.”
Consider this scenario. Organizations A, B and C are large and powerful. Quantum computing, if realized, would change their industry profoundly. Realizing that it’s unlikely but still within the realm of plausibility, they need to be in a strategic position if quantum computing turns out to be a reality. They could research it in-house, but this would be an expensive undertaking and not likely to pan out. They do not want to pay for it, or at lest not very much. So they establish a quantum computing company, or reach out to a quantum computing company that already exists and seems relatively well-organized. A, B and C buy some stock and/or a contract and promote this company by media coverage and generally make the fundamentals look very attractive to the retail investor, from whom the company raises substantial capital. If quantum computing ends up going nowhere then A, B and C are not out too much time or money. If the company does make a breakthrough, then their CEO’s call up A, B and C and say “hey, this is actually going to happen”. A, B and C then buy up as much of the stock as they can over the course of a few months, perhaps with a final shakeout at the end whereby the company is made to look like they’re in trouble financially. Then the breakthrough is made public (what a comeback!). A,B and C end up majority shareholders.
Of course, I’m not saying that this is the case at all here. However, defense contractors, the military, big tech companies, etc. would *have* to explore a possibility such as quantum computing, assuming it’s somewhat plausible. A retail investor does not.
The difference between something like tesla and this is that the electric car already *had* been proven to work decades before. In fact, GM’s EV1 worked so well that they feared it would cannibalize their other offerings, having superior longevity and not needing nearly as many replacement parts. So when the leases were up, they took them all back and crushed them. The writing had been on the wall for decades, and battery tech had improved quite a bit since the 90s.
November 27, 2022 at 7:09 pm
Agree 10000%. However, consider that these companies are not just throwing $50m at nothing. There are working, actual quantum computers today. Your use case scenario is correct – don’t spend a billion on research, but we can afford a $50m flyer on someone who might be already close.
Your words essentially are to use caution. I agree – which is why a very small fraction of my portfolio is exposed to it. But to ‘avoid’ it? Yeah, no – when a company like this already has working computers, has the leading industry guy running the tech, and massive tech backing – this has been de-risked a lot already to at least take a flyer. On something like this, you might see the stock go down over the next 2-3 years unless there are major breakthroughs. This is something I would like to buy monthly in small tranches, no matter the price. I’m hoping the price continues lower the next 2-3 years as I would love to accumulate more.
November 27, 2022 at 7:55 pm
I don’t think it’s terrible or unwise as a speculative investment, I just don’t particularly like the feel of it.