Better Artificial Intelligence Stock: IonQ vs. Nvidia

Since the launch of ChatGPT in late 2022, artificial intelligence (AI) has become more integrated into our daily lives. AI technology is advancing rapidly, with a notable 56% rise in AI regulations in the U.S. during 2023. In this landscape, two prominent companies are making significant strides: quantum computing firm IonQ and semiconductor powerhouse Nvidia.

Both companies are at the forefront of developing innovative technologies that could transform the computing industry, leading to impressive stock performance. By December 11, IonQ's stock had surged roughly 140%, while Nvidia's had increased by about 180% throughout 2024.

The question arises: which company is a better long-term investment in the growing sector of AI? Let's analyze both companies to find out.

A closer look at IonQ's quantum technology

IonQ is an appealing investment due to its advancements in quantum computing, which can enhance AI capabilities beyond what traditional supercomputers can achieve. Quantum computers utilize subatomic particles to solve complex problems in seconds that would typically take traditional computers years.

While IonQ faces competition in the quantum computing arena, it has developed technology that addresses industry challenges. Many quantum systems require extremely low temperatures, but IonQ's technology can function at room temperature, allowing for greater accessibility.

The company has attracted significant clients, such as Oak Ridge National Laboratory, which is using IonQ's quantum computing systems to upgrade the U.S. power grid. This expanding client base has propelled IonQ's revenue growth.

In its third quarter, IonQ reported a remarkable 102% increase in sales compared to the same period last year, totaling $12.4 million. The company also secured new client bookings amounting to $63.5 million during the quarter.

However, it's important to note that IonQ is currently not profitable, closing Q3 with a net loss of $52.5 million, an increase from a loss of $44.8 million the previous year. Much of its expenditure goes toward research and development, which is critical for pioneering new technologies.

IonQ is committed to enhancing its technological edge. In November, the company announced it would acquire quantum networking firm Qubitekk. This acquisition aims to create a network effect for IonQ's quantum machines, reflecting the trend in today’s AI that relies on the power of interconnected computers.

Nvidia's strengths in AI

Nvidia has experienced immense growth since the rise of AI, driven by strong demand for its semiconductor chips from businesses and government organizations. Reports suggest that ChatGPT required over 10,000 Nvidia chips to operate effectively.

The company's semiconductor products, particularly its graphics processing units (GPUs), are favored for AI applications due to their superior processing power. GPUs enable AI systems to swiftly analyze large data sets and perform complex calculations efficiently.

Nvidia continues to witness robust demand for its offerings. In its fiscal Q3 ending October 27, the company reported record revenue of $35.1 billion, reflecting an impressive 94% growth compared to the prior year. Net income also surged to $19.3 billion, marking a remarkable 109% year-over-year increase.

Nvidia's latest technology, the Blackwell platform, is tailored for the advanced computing needs of AI systems. Each GPU in the Blackwell platform is equipped with over 200 billion transistors, pushing the limits of scientific computing.

The high demand for the Blackwell platform is evident, with Nvidia's management indicating that demand far exceeds their current supply capabilities. Governments in Japan and Taiwan are utilizing Blackwell technology to build AI supercomputers.

Given the strong demand for its products, Nvidia projects its Q4 revenue to reach approximately $37.5 billion, a significant increase from $22.1 billion in the same quarter last year.

Evaluating IonQ versus Nvidia

Both companies showcase compelling reasons for investment, especially due to their innovative technologies. However, various factors must be considered to determine the better option.

Nvidia's Blackwell platform is impressive, capable of simulating functions typically attributed to quantum computers. Current quantum machines struggle with time limitations, which means they cannot yet supplant classical computing systems like Blackwell in the near future.

Looking ahead, quantum computers are expected to achieve a milestone known as quantum advantage, where they surpass classical computers in certain tasks. Estimates suggest this may occur after 2030, indicating that IonQ's technology may still take years to become widely adopted.

Another factor to consider is the valuation of both companies, especially after their stock gains this year. IonQ's price-to-sales (P/S) ratio has risen significantly, making it appear overvalued compared to Nvidia's relative valuation.

Considering these aspects, the better investment option is clearer when reflecting on three key points:

• IonQ's stock seems to be overvalued.
• Nvidia is experiencing soaring profitability and demand for its Blackwell platform.
• IonQ's technology may still be years away from widespread adoption.

In the competitive realm of artificial intelligence, Nvidia emerges as the more compelling investment choice between these two innovative companies.

Robert Izquierdo has positions in IonQ and Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

AI, Investment, Technology