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….