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Investing in tech stocks is a risky proposition. While tech companies are currently dominating the stock market, the disruptive nature associated with this sector makes investing in tech stocks a high-risk strategy. Investors should evaluate the fundamentals closely to gauge whether the company enjoys a significant competitive moat that may help it thrive across market cycles.

One beaten-down tech stock that's part of a disruptive market segment is IonQ (IONQ). Valued at $1.78 billion by market cap, IonQ trades 76% below its all-time highs.

IonQ is engaged in the development of quantum computing systems in the U.S. It sells access to quantum computers of various qubit capacities through cloud platforms such as Amazon's (AMZN) AWS, Microsoft’s (MSFT) Azure, and Google’s (GOOG) (GOOGL) Cloud Marketplace.

Let’s see if it makes sense to invest in this tech stock right now.

How Did IonQ Perform in Q1 of 2024?

As stated above, IonQ operates in the quantum computing space, a technology that accelerates processing times for complex problems. This enables quantum computer devices to solve complex problems quickly when compared to legacy computers.

In Q1 of 2024, IonQ increased sales by 77% year over year to $7.6 million. However, its cost of sales more than tripled to $3.4 million, while operating expenses stood at $57 million, up from $31 million in the year-ago period. Its losses in the last 12 months have risen from $27 million to $40 million.

With $375 million in cash, IonQ has enough resources to support its cash burn rate for the next two years. However, it is highly probable that the company will have to raise equity capital soon, given its losses per share are forecast to widen from $0.78 in 2023 to $0.87 in 2024, and then again to $0.93 in 2025. If the company raises equity capital, it will dilute existing shareholder wealth and result in lower share prices.

That said, IonQ is investing heavily in research and development that should help it fuel innovation and gain market share going forward. In Q1, its R&D outlays more than doubled to $32 million.

IonQ stated that its manufacturing facility is fully operational, and it is gaining interest from several companies. For instance, it onboarded a customer for its quantum computers that can be deployed in data centers.

Moreover, analysts tracking the stock expect it to increase sales from $22 million in 2023 to $82.4 million in 2025.

Morgan Stanley Lowers Price Target for IONQ

Investment firm Morgan Stanley (MS) recently lowered its target price on IONQ to $7 from $11.30, marking a new Street-low forecast for the stock. While Morgan Stanley is bullish on the company’s long-term prospects, the brokerage is worried in the shorter term about its negative profit margins.

Morgan Stanley analyst Joseph Moore stated, “We are enthusiastic about the long-term opportunity in quantum, with the backdrop of large increases in spending in areas that quantum technology seems well positioned to address (AI, drug discovery, simulation).”

However, Moore cautioned that the market for quantum hardware is still nascent, making IONQ stock a high-risk bet in the near term.

Out of the five analysts covering IONQ stock, two recommend “strong buy,” one recommends “moderate buy,” and two recommend “hold," for a “moderate buy” consensus.

While IONQ is fully valued in Morgan Stanley's view, the average target price for the tech stock is still a healthy $14.70, representing an 83% premium to Thursday's close.

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.