Better Artificial Intelligence Stock: IonQ vs. Rigetti Computing

When it comes to investing in the artificial intelligence (AI) sector, most people talk about companies like Nvidia, which makes GPUs, or software developers such as OpenAI. They might also consider large cloud companies like Microsoft and firms focusing on data center technologies like Broadcom. However, many investors often overlook the growing field of quantum computing that may play a significant role in facilitating AI advancements.

Quantum computers have the unique ability to handle binary bits—zeros and ones—simultaneously, whereas traditional computers deal with these bits one at a time. This capability allows quantum systems to process massive amounts of data much quicker than ordinary computers, though they currently come with larger sizes, higher costs, and increased error rates compared to traditional systems. Because of these challenges, quantum computers have not yet become mainstream in handling AI tasks in the way that powerful data center GPUs do.

Nevertheless, many quantum computing firms plan to develop smaller chips, lessen error rates, and make manufacturing more affordable over the next few years. Additionally, they are beginning to offer quantum computing capabilities through cloud services, which could enhance their efficiency for complex AI applications.

Two notable companies in this quantum computing field are IonQ (IONQ) and Rigetti Computing (RGTI). In this analysis, we will explore which of these early players could prove to be a more attractive investment.

Comparing IonQ and Rigetti

IonQ offers three types of quantum computing systems: the advanced Aria system, the commercial Forte system, and the on-premise Forte Enterprise system. The company also provides its quantum computing services via the cloud. IonQ tends to target large government clients and educational institutions with its products.

One of IonQ's key innovations is a trapped ion technology that could potentially condense the size of a quantum processing unit (QPU) from several feet to just a few inches. If successful, this miniaturization could lead to the creation of more powerful and cost-effective quantum systems in the future.

However, IonQ did face a setback with the unexpected resignation of its co-founder and chief scientist Chris Monroe, who played a crucial role in advancing the trapped ion technology. Despite this, IonQ has continued to progress, installing additional systems, securing new government contracts, and forging valuable partnerships in the AI space.

On the other hand, Rigetti focuses on designing and manufacturing its QPUs while allowing developers to create custom quantum algorithms through its Forest cloud platform. This approach makes Rigetti a comprehensive quantum computing solution provider.

Much like IonQ, Rigetti aims to produce cheaper and more scalable quantum systems for commercial use. However, the sudden departure of its founder and former CEO Chad Rigetti in December 2022 raised some concerns. Rigetti has since worked to reassure investors by successfully launching new products.

In December, Rigetti unveiled its Novera QPU, a 9-qubit commercial quantum computer priced at $900,000, with orders from various government and research institutions. They also deployed an 84-qubit system named Ankaa-3, designed to minimize processing errors to over 99%. They have plans for an even more powerful 100-qubit system with superior error detection capabilities this year.

Future Prospects of Each Company

IonQ and Rigetti both went public through mergers with special purpose acquisition companies (SPACs) but fell short of their initial revenue estimates. IonQ reported $22 million in revenue for 2023, which is below its goal of $34 million. Rigetti reached only $12 million, also considerably missing its $34 million target.

Despite these disappointments, both stocks reached peak values in December 2024, with analysts praising their advancements. From 2023 to 2026, IonQ's revenue is projected to expand at a compound annual growth rate (CAGR) of 89%, reaching $148 million, while Rigetti's revenue is expected to grow at a CAGR of 43%, hitting $35 million.

Neither company is anticipated to be profitable in the near term. Furthermore, both may resort to dilution of shares to raise funds and manage stock-based compensation costs. Since their SPAC mergers, IonQ has raised its share count by 10%, while Rigetti has increased it by a substantial 69%.

Both companies are currently expensive in terms of valuations. IonQ has an enterprise value of $8.8 billion, corresponding to 59 times its expected 2026 sales. Rigetti’s enterprise value stands at $4.3 billion, which translates to an eye-popping 123 times its projected sales for 2026.

Conclusion: IonQ is the Preferred Investment

According to Fortune Business Insights, the quantum computing market is projected to grow at a CAGR of 34.8% from 2024 to 2032, fueled by innovations like smaller chips and improved error detection metrics. Both IonQ and Rigetti are poised to gain from this growth, but investors should remain cautious about their lofty valuations. While neither stock may seem like an urgent buy at the moment, IonQ's greater scale, faster growth, limited share dilution, and comparatively lower valuation make it a more compelling investment choice than Rigetti.

Leo Sun has no position in any of the stocks mentioned. The author notes that The Motley Fool has investments in Microsoft and Nvidia. They also recommend Broadcom and make specific investment options related to Microsoft.

Investment, Technology, Computing