Why Nvidia's Quantum Outlook Crushed IonQ and Rigetti Computing

Nvidia CEO Jensen Huang recently predicted it could take 15 to 30 years to bring "very useful quantum computers" to the market. He said those systems would require a million more quantum bits (qubits) than they have today.

Huang's cautious comments caused two of the market's most popular quantum computing stocks, IonQ (NYSE: IONQ) and Rigetti Computing (NASDAQ: RGTI), to plunge 39% and 45%, respectively, on Jan. 8. Let's see why that happened -- and if IonQ and Rigetti are still worth buying after their precipitous declines.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Image source: Getty Images.

Why did Huang's comments burst the quantum bubble?

Traditional computers store their data in binary bits of zeros and ones. Quantum processing units (QPUs) can store zeros and ones simultaneously in qubits, which enables them to process data much faster than traditional computers.

But quantum computers are much larger and pricier than their binary counterparts, and they tend to produce more errors with their rapid fire calculations. That's why they're still mainly used by universities, research institutions, and government agencies for niche calculations instead of more practical applications for mainstream businesses.

Therefore, Huang's prediction that quantum computers won't go mainstream for 15 to 30 years sounds reasonable. It took Nvidia about two decades for its gaming and professional visualization graphics processing units (GPUs) to evolve into AI accelerators for data centers.

However, nascent quantum computing companies like IonQ and Rigetti -- which both went public by merging with special purpose acquisition companies (SPACs) -- generated a lot of buzz with their bold predictions. Many investors scooped up their stocks, which propelled their valuations to meme stock levels. That's why both stocks plunged after Huang's latest comments.

How expensive were IonQ and Rigetti?

IonQ sells quantum computing systems to government agencies and universities. It also provides its quantum computing power as a cloud-based service. To scale up its systems, it's been developing a "trapped ion" technology which aims to shrink the width of a QPU from a few feet to a few inches. That could help it scale up its systems at a faster and cheaper rate while reducing their errors, but those efforts suffered a setback after its co-founder and chief scientist Chris Monroe stepped down in 2023.

Rigetti designs and manufactures QPUs, and its Forest cloud platform enables developers to write their own quantum algorithms on its systems. In late 2024, it launched its Novera QPU -- a 9-qubit commercial version of its own quantum computer which costs $900,000. It also recently deployed its first 84-qubit Ankaa-3 system, which can detect more than 99% of processing errors, and it plans to deploy a more powerful 100-qubit system with an even higher error-detection rate this year.

But like IonQ, Rigetti lost one of its visionary leaders after its public debut. Its founder Chad Rigetti unexpectedly stepped down as its president, CEO, and director in December 2022. However, its subsequent product launches allayed some of those concerns.

IonQ and Rigetti are both generating consistent revenues, but they're unprofitable and trade at nosebleed valuations. Even after its latest decline, IonQ has an enterprise value of $6.3 billion, which is 75 times the $83 million in revenue it's expected to generate in 2025. Rigetti still has an enterprise value of $2.7 billion, which is 171 times higher than its projected revenue of $16 million for 2025. Therefore, it isn't too surprising that a single cautious statement from Nvidia's CEO crushed both stocks.

Should investors buy IonQ and Rigetti today?

Both companies are still growing rapidly. From 2023 to 2026, analysts expect IonQ's revenue to grow at a compound annual growth rate (CAGR) of 89% to $145 million. They expect Rigetti's revenue to grow at a CAGR of 43% to $35 million.

But IonQ and Rigetti already trade at 43 and 77 times those rosy estimates for 2026, which are likely pinned to a bullish outlook for the broader quantum computing market. If the quantum computing market grows at a much slower-than-expected rate, those analysts will rein in their long-term estimates and their valuations will collapse.

Therefore, I wouldn't touch IonQ and Rigetti after Jensen Huang's latest comments. Huang gave investors a great reason to take profits in IonQ and Rigetti after their latest rallies, so they'll likely remain falling knives for the foreseeable future.

Should you invest $1,000 in IonQ right now?

Before you buy stock in IonQ, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and IonQ wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $832,928!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of January 13, 2025

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.