IonQ Stock: 113% Upside If Analysts Are Right? (IONQ)

IonQ stock at $30 vs a $64 analyst target

0:00 IonQ closed Friday about 25% below the price one investor paid for 2 billion of its stock just 2 weeks earlier. Yet, the analysts covering it still average a target of $64. So, either that investor's already down about 500 million on paper, or there's something the headline is missing. The answer is in the fine print. Because that buyer didn't just get shares, they also got a giant stack of warrants, and that changes the math. By the end, you'll know what the deal really bought, what IonQ does with the money, and what to watch for on November 5th.

The $2 billion IonQ offering at $40

0:28 Here's the deal. On October 14th, IonQ priced a $2 billion offering, 20.5 million shares plus pre-funded warrants for another 29.5 million, all at $40, about 15% above the previous close.

100 million warrants at $69

0:40 On top of that, the buyer got 7-year warrants for 100 million more shares at about $69, double the stock price at the time. And there was only one buyer, a fund managed by Heights Capital Management, with J.P. Morgan as the sole underwriter. One check, 2 billion. My name is Blake. I dig up stocks before the bull stampedes, so you're not buying at the top like Wojack. And today on 9-to-5 Investing, we're figuring out whether that $2 billion buyer overpaid, and what it means for everyone else holding IonQ.

1:06 Think of it like paying over asking for a house, but the seller throws in the right to buy two more houses on the same street anytime in the next 7 years at double what yours cost.

The house analogy: what the warrants are worth

1:16 If the street booms, those extra rights are worth a fortune. If it doesn't, you just overpaid for one house. That's the bet Heights made. So, the 25% paper loss isn't the whole story. The warrants are worth something today, and a lot more if IonQ ever more than doubles. So, what is IonQ?

What IonQ does: trapped-ion quantum computers vs Rigetti, D-Wave

1:30 It builds quantum computers that use trapped ions, single-charge atoms held in place by electric fields, and it rents them out through the big cloud providers. It's also been buying companies in quantum networking, sensing, and security, which is a big reason revenue jumped. Its customers and partners include Amazon Web Services, AstraZeneca, and Nvidia, and the company says it reached stage C of DARPA's quantum benchmarking initiative. It's not alone.

1:53 Rigetti, D-Wave, and the newly public Quantinuum are chasing the same prize, and most quantum stocks have been cut in half or worse from their highs. Second quarter revenue was about $80 million up 287% from a year earlier and management guided to 280 to 290 million for the full year.

Revenue up 287%, and a $1.9 billion GAAP loss

2:08 But here's the other side. The GAAP net loss for that quarter was nearly $1.9 billion. That's not a typo. Most of that GAAP is items management excludes like stock pay and accounting charges. The number at highlights adjusted EBITDA was a loss of about 120 million. Either way, it burns cash, which is why it keeps raising money. And it just agreed to buy a security company called Ellipti for over a billion dollars paid in IonQ stock.

The Elisity deal, paid in IonQ stock

2:33 Paying in stock means more shares. The price is set by a formula with a floor and a ceiling. So nobody knows the exact share count until it closes. Added up about 50 million new share equivalents from the offering up to 100 million more if the warrants get used plus the Ellipti shares.

Dilution: how many new shares

2:46 That's the dilution that the market is pricing. Now, the analysts, 14 of them average $64 with a low around $42 and a high of $100.

Analyst price targets: $42 to $100

2:53 But look at the trend. After the offering, Rosenblatt cut its target from $100 to $70 and Morgan Stanley trimmed its target and rates it a hold. And the bank that ran the offering, JP Morgan, isn't among the analyst targets I could find. For once, the underwriter is not the cheerleader. That's the bull side of the math. Now here's what Negative Nelly, the biggest bear on 925 Investing, says.

The bear case: Negative Nelly

3:22 First, the business is small next to the hype. Even the top of this year's guidance is only $290 of revenue and it's still losing money on an adjusted basis. Second, dilution. And this is a big one. Every raise and every deal paid in stock shrinks your slice of the pie. Third, quantum computing still has to prove it can do useful work at scale and nobody knows exactly when that happens. And if you bought near the high, around $74, you're down about 60%.

3:44 Now positive Pete's turn.

The bull case: Positive Pete

3:48 This is the bull on the stock. After the raise, CEO Niccolo de Massi called IonQ the best capitalized pure play quantum company. And the buyers warrants only really pay off if the stock gets back above $69. So Heights is betting on years, not weeks. And we think not just about the next two or three quarters, next two or three years at IonQ. We talk about the next five years, seven years. Which is really how I would suggest you approach investing.

4:13 It's a long game. We're not worried about the day-to-day, the week-to-week. We want to think in terms of years. IonQ reports again on November 5th.

What to watch on November 5, and did the buyer overpay?

4:20 That's when we find out whether revenue is on track and how much of that $2 billion it plans to spend. So, did that investor overpay? Here's my read. On the shares alone, yes, for now. But they also bought a seven-year bet on IonQ more than doubling. The market sees the dilution today. The warrants are a bet on years from now. If you're interested, the numbers to watch on November 5th are revenue against the $280 to $290 million guide, cash burn, and the final Elicity share count.

4:46 Remember, one fund paid 40 a share with its eyes open. The rest of us get the same stock minus the warrants. Would you buy IonQ before November 5th or wait for the numbers? Tell me below. The algorithm picked your next video and it cost less than $2 billion.