Kerrisdale Capital is short shares of IonQ, a $5 billion quantum computing company whose stock has tripled in recent months as retail investors, chasing the “next AI” trade, piled into an industry that has long been plagued by overpromises and hype. Despite retreating from all-time highs, shares still trade at a staggering 40x consensus 2026E revenue – a valuation that defies both logic and the warnings of former IonQ employees, who highlighted monumental scaling challenges that will derail the company’s ambitious plans. We believe IonQ is far from being on the verge of a new era of commercial success with its limited, error-prone systems. Instead, investors seduced by IonQ’s claimed “history of delivering on technical and commercial milestones” are fixated on relatively immaterial past achievements, while ignoring the existential challenge all early-stage computing companies face: scalability.
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IonQ has painted a picture of exponential growth, forecasting a leap from ~80-100 physical qubits today to over 4,000 by 2026 and 32,000 by 2028. To achieve this, the company is banking on photonic interconnects to link its trapped-ion computing modules. Yet, despite over a decade of research and development, commercially viable photonic interconnects remain a distant prospect. IonQ has not been fully transparent with investors about the status of its photonic interconnect development, never disclosing performance metrics for this critical technology. However, recent data from the academic labs IonQ relies on for R&D reveal continued inefficiencies and abysmally slow speeds. A year ago, IonQ claimed it was “on track to finish” developing photonic interconnects by 2024, but industry executives we consulted confirmed that performance remains far below the threshold necessary for commercial scaling. Rather than reflecting a strategic shift, the looming inability to deliver on growth promises is what has driven IonQ’s recent pivot into quantum networking, the need to raise additional equity despite prior assurances to the contrary, and other material changes to its technology benchmarks, financial reporting, and management, as announced late last month.
IonQ’s lack of transparency is hardly new and widely recognized within the industry. Recently departed CEO Peter Chapman had a history of making bold claims that diverged from reality. In October 2020, Chapman claimed to have a system with “32 perfect qubits” when a former IonQ executive confirmed to us the company only had an 11-qubit machine at the time. That same year, Chapman also predicted IonQ would develop desktop quantum computers and achieve “broad quantum advantage across a wide variety of use cases” by 2025. Experts we spoke with viewed IonQ’s assertion that its Tempo system will represent a “ChatGPT moment” as similarly outlandish – the device will instead be a “toy” incapable of providing meaningful commercial value. Throughout our research, we encountered consistent concern from experts about the gap between IonQ’s market reputation and its standing within the industry as a purveyor of hype.
A cash-burning, highly promotional company in a hot sector valued at absurd revenue multiples, with retail investors piling in and ignoring critical scaling challenge – even as the CEO unloads $37m worth of stock – are hallmarks of a disaster in the making. Quantum computing may hold transformative potential someday, but the path is long, uncertain, and fiercely competitive with better-resourced players (both in quantum and classical computing) vying for dominance. Based on our research, IonQ is not even the clear leader among ion trap-based quantum computing providers. As reality sets in, IonQ shareholders chasing a quantum leap will find themselves wishing they had stayed in a more stable state.
Executive Summary
IonQ has a massive scaling problem. For years, IonQ has projected it would produce systems with an exponential increase in physical qubits, from ~80-100 by the end of this year to a staggering 32,000 by 2028. To achieve this, the company plans to link multiple modules or cores – each containing roughly 100-200 qubits – using photonic interconnects, a technology that relies on photons and fiber optics to enable scaled communication between qubits. IonQ has provided only superficial descriptions of the milestones needed for photonic interconnect development and has been notably opaque about current performance metrics for this critical component. We suspect this lack of transparency stems from the interconnects’ poor quality, which a CEO in the industry described as “absolutely appalling.” Recent research from the academic institutions IonQ relies on for R&D reveals a stark reality: despite years of effort by scientists and engineers, the connection rates of photonic interconnects remain far too slow and inefficient to support scalable quantum computing. Experts we consulted confirmed IonQ is nowhere near “on track to finish” developing photonic interconnects, as the company claimed just last year. On its 4Q24 call, IonQ unexpectedly announced changes to its technology roadmap would be forthcoming and a key benchmark would no longer be used. We believe these changes obfuscate the nature of technical challenges that undermine IonQ’s ability to deliver on ambitious promises.
Without a timely path to scalability, IonQ had been forced to pivot. IonQ lacks the vast financial resources and engineering capabilities of mega-cap competitors like Microsoft and
Google, both of which have made significant commitments to quantum computing through internal projects and strategic investments in IonQ’s direct competitors, such as QuEra,
Quantum Circuits, Inc., Quantinuum, and PsiQuantum. While these competitors also face unresolved scaling issues, they benefit from substantial private funding and are pursuing promising alternative technologies and scaling methods that diverge from IonQ’s approach – all without the distraction of appeasing shareholders with quarterly performance. With photonic interconnect development stalled and the path to profitability delayed, IonQ has raised additional equity, pursued interim sources of revenue though dilutive M&A, and will soon overhaul its technology roadmap. Investors buying in the IonQ story at this particular juncture are buying into a broken investment thesis.
A history of hype and misleading marketing. IonQ positions itself as “leading the pack” with a significant technological edge over competitors. However, based on over 20 interviews with industry participants (including former IonQ employees), the company excels more in promotional hype than in genuine technology leadership. For example, in October 2020, CEO Peter Chapman proudly unveiled a system with “32 perfect qubits,” a claim that garnered significant attention. Yet, IonQ’s own public filings over a year later described such a device as unavailable for customers. A former IonQ executive confirmed to us that the company only had an 11-qubit machine at the time. That same year, Chapman made a series of bold predictions, including the development of “modular, rack-mounted” computers, the ability to mass-produce quantum chips by simply instructing a manufacturer in Taiwan to “give me 10,000 [chips]” by 2023, and the achievement of “broad quantum advantage across a wide variety of use cases” by 2025. The same former IonQ executive viewed IonQ’s nearly $1bn in revenue by 2030 as similarly unrealistic.
Shares have a long way to fall. While shares have dropped from recent highs, they remain up 300% since retail investors began flocking to quantum computing as the “next big thing.” Even after the pullback, IonQ trades at a staggering 43x our estimated 2027 revenue. As momentum fades for cash-burning speculative bets, we expect IonQ’s shares to continue their descent toward a fair value in the single digits.
Company Overview
Memo: A primer on quantum computing is beyond the intent and scope of this report. We would refer investors seeking a greater understanding of the underlying technology to initiating coverage pieces from Goldman Sachs (November 21, 2021) and Needham’s “An Introduction to Quantum Computing and its Participants” (June 7, 2022). The online book, Introduction to Quantum Computing for Business is also a helpful resource. A summary of the basic differences between quantum computing and classical, as well as some common misconceptions, is provided in Appendix I.
Co-founded in 2015 by Dr. Christopher Monroe (former Chief Science Officer) and Dr. Jungsang Kim (former CTO), IonQ is a quantum computing company which specializes in trapped-ion qubits as the foundation for its quantum computers. Monroe and Kim pioneered research in quantum computing and its potential commercial applications in the 1990s, and their work at the University of Maryland and Duke University forms the backbone of IonQ’s technology. Both founders stepped away from their day-to-day roles with the company in late 2023 and early 2024 to focus on academic pursuits. IonQ maintains exclusive license agreements to certain patents and IP related to trapped-ion quantum computing systems developed at Duke University. IonQ went public in 2021 through a SPAC merger and is headquartered in College Park, Maryland, with additional with manufacturing and engineering facilities in Seattle, Washington. Last month, in conjunction with 4Q24 earnings, IonQ announced a management
shuffle, with CEO Peter Chapman assuming the role of Executive Chair and board member, and Niccolo de Masi appointed as new President and CEO, effective immediately.
Methods of implementing qubits – known as modalities – vary widely across the quantum computing industry, each with its own set of advantages and disadvantages in terms of performance and scalability. Like other ion trap-based and neutral atom companies, IonQ uses “perfect,” naturally occurring qubits, which benefit from high fidelity, the ability to operate at room temperature, and long coherence times. However, what nature provides in quality, it lacks in commercial practicality: trapped-ion qubits suffer from orders-of-magnitude slower gate speeds compared to semiconductor-based qubits, as well as significant scaling challenges due to the complexity of controlling and interconnecting large numbers of ions. For a deeper dive into how ion traps work, please see Appendix II, and for an overview of leading modalities and their respective performance characteristics, refer to Appendix III.
Despite hyperbolic claims that quantum computing will “CHANGE everything!,” quantum computing is not simply a faster version of classical computing. It will not revolutionize every industry, nor will it replace traditional computers for everyday tasks like browsing the internet, streaming Netflix, or gaming. IonQ, like others in the industry, believes quantum computers have the potential to address specific problems that classical computing may never solve, with applications in simulating quantum systems (e.g., in materials science or pharmaceuticals), factoring large numbers for decryption, and solving complex optimization problems. Many of these problems, however, require far more stable qubits and higher fidelity than what is currently achievable.
Today, quantum computing companies generally possess systems with anywhere from 30-1,000 physical qubits, depending on hardware approach. Yet experts estimate that millions of qubits – alongside significant advancements in algorithmics, software, and cryogenic cooling systems – will be necessary to tackle challenges like complex molecular simulations or code-breaking using Shor’s algorithm.
IonQ’s most advanced system currently available, Forte Enterprise, boasts 36 physical qubits and 36 “algorithmic qubits” (#AQ).1 The company is targeting the release of prototypes for its next-generation quantum computer, Tempo, with #AQ64, later this year. IonQ’s website claims Tempo will be “capable of commercial advantage for certain applications,” but experts we interviewed were skeptical, describing the device as little more than a “toy.” We believe IonQ’s strategy of pushing error-prone systems for commercial sales – systems which fall far short of true fault-tolerant quantum computing – is driven less by customer demand and more by the pressures of being a publicly traded company with substantial cash burn and unresolved scalability challenges. The true end goal for all quantum computing companies is to develop reliable, powerful systems that can outperform classical computers across a wide range of applications – not just achieving narrow, vaguely defined “commercial advantage.” Until then, we view IonQ’s efforts to monetize its current capabilities as premature and opportunistic, rather than grounded in meaningful technological progress.
Industry experts often characterize the path to quantum advantage as being solved in three phases (IonQ Form 10-K, p.7):
- Noisy and intermediate-scale quantum (NISQ) computers: The earliest stage of development. Error-prone, intermediate-scale systems used for developing new quantum approaches with limited commercial applications and not expected to generate substantial revenue.
- Broad quantum advantage: Quantum computers expected to offer practical solutions to meaningful problems superior to those provided by classical computers, providing a genuine commercial impact.
- Fault-tolerant quantum computing: Large modular computers with enough power to tackle a wide array of commercial applications to many sectors of the economy. Classical computers no longer compete with quantum computers in many fields.
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