Better Artificial Intelligence Stock: IonQ vs. Nvidia

Since the release of ChatGPT in late 2022, artificial intelligence (AI) has increasingly become a significant part of our daily lives. This rising significance has led to a notable increase in U.S. regulations surrounding AI, which saw a surge of 56% in 2023.

As businesses continue to innovate in computer science, two prominent companies leading the way in AI technology are quantum computing firm IonQ and the semiconductor powerhouse Nvidia.

Both companies have developed technologies that have the potential to transform the computing landscape, which has significantly boosted their stock prices. By December 11, IonQ's shares had risen approximately 140%, while Nvidia's stock had gained around 180% in 2024.

The question arises: which of these companies presents a stronger long-term investment opportunity to benefit from the growing trend of AI? Let's explore both companies to find out.

A closer look at IonQ's quantum technology

IonQ stands out as a compelling investment choice, as quantum computing has the potential to elevate AI capabilities beyond what the most powerful traditional supercomputers can achieve. Quantum computers leverage the principles of subatomic particles to carry out intricate calculations in mere seconds, tasks that could take conventional computers years.

While several companies are engaged in quantum computing, IonQ's technology addresses many of the challenges typically faced in this field. For instance, many quantum computing systems require extremely low temperatures to maintain the stability of subatomic particles; conversely, IonQ's platform can function effectively at room temperature.

This capability has enabled IonQ to attract notable customers, such as Oak Ridge National Laboratory, which is utilizing IonQ's quantum innovations to enhance the U.S. power grid. IonQ's expanding client base has translated into rapid revenue growth.

In the third quarter, IonQ's sales surged by 102% compared to the previous year, reaching $12.4 million. Additionally, the company secured $63.5 million in new customer bookings during the same quarter.

However, IonQ currently operates at a loss. The company reported a net loss of $52.5 million in Q3, an increase from a $44.8 million loss in the prior year, driven by $33.2 million in research and development expenses. Building innovative technologies is indeed costly.

IonQ is focused on enhancing its technological position and recently announced its acquisition of quantum networking firm Qubitekk. In today's AI landscape, the integration of multiple computers is vital for performance. Through the Qubitekk acquisition, IonQ aims to replicate this network effect for its quantum systems.

Nvidia's advantages in AI

The advent of AI has propelled Nvidia's business forward as both businesses and governments exhibit a relentless demand for its semiconductor chips. Estimates suggest that ChatGPT alone was created using approximately 10,000 Nvidia chips.

Nvidia's success in AI stems largely from its development of specialized processors known as graphics processing units (GPUs). These powerful chips provide the necessary computational capability for AI systems to process vast amounts of data swiftly and efficiently.

The demand for Nvidia's offerings continues to be robust. In its fiscal Q3 report, ending October 27, Nvidia achieved record revenues of $35.1 billion, a remarkable 94% increase year over year. Moreover, Q3 net income saw a significant rise, reaching $19.3 billion, an outstanding 109% increase over the prior year.

Nvidia's latest technology, called the Blackwell platform, is designed specifically to meet the complex computing needs of AI applications. According to Nvidia, Blackwell sets new boundaries in scientific computing, with each GPU on the platform featuring over 200 billion transistors.

Customer demand for Blackwell is soaring, with Nvidia management indicating that "demand greatly exceeds supply." Organizations such as the governments of Japan and Taiwan are constructing AI supercomputers powered by Blackwell technology.

Given the high demand for its products, Nvidia anticipates Q4 revenue to reach approximately $37.5 billion, representing a significant increase from last year’s $22.1 billion.

Choosing between IonQ and Nvidia

Both IonQ and Nvidia present strong investment propositions, given the innovative nature of their technologies. When deciding between the two, several key factors must be taken into account.

Nvidia's Blackwell platform is highly capable, even simulating certain aspects of quantum computers. This capability arises because current quantum machines face limitations in how long they can perform calculations before their subatomic particles degrade. Therefore, in the short term, quantum computers will not be able to replace classical systems like Blackwell.

Looking further ahead, quantum computers are expected to achieve what is termed "quantum advantage," a point at which these machines outperform classical computers. Some predictions suggest that quantum advantage could materialize well after 2030, indicating that IonQ’s technology might not outpace Nvidia’s for several years, making IonQ a higher-risk investment.

Additionally, considering the recent gains in stock prices for both companies, it is essential to evaluate their respective valuations. Examining their price-to-sales ratios (P/S) can provide insight into what investors are willing to pay for each dollar of sales generated by the companies.

As the data shows, IonQ's P/S ratio has recently seen a dramatic increase, resulting in a relatively high valuation compared to Nvidia. This suggests that Nvidia shares may represent better value.

Ultimately, three crucial considerations emerge:

• IonQ appears to be overvalued at present.
• Nvidia is experiencing soaring demand and profitability stemming from its Blackwell platform.
• Widespread adoption of IonQ's technology remains years away.

Given these factors, among these two innovative companies, Nvidia emerges as the stronger investment choice in the rapidly evolving field of artificial intelligence.

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, Stock, Investment