Contemplate abandoning IonQ and invest in two alternative tech stocks instead.
Two years ago, IonQ's (IONQ -5.69%) stock plummeted to an all-time low of around $3. The quantum computing company lost its shine due to failing to meet its growth targets, incurring significant losses, and dealing with the departure of a co-founder.
These setbacks overshadowed the promising future of its "trapped ion" technology, which minimizes the size of quantum processing units (QPUs) from several feet to several inches. Additionally, the broader disruptive potential of its quantum computing systems, capable of completing tasks at a much faster rate than conventional binary computing systems, was overlooked.
However, today, IonQ's stock is trading at approximately $40. Its stock price skyrocketed on the back of new partnerships, increased exposure to the artificial intelligence (AI) market, repeated upgrades to its guidance, and the acquisition of its competitor Qubitekk. IonQ now anticipates a 75%-93% revenue growth for 2024, while analysts predict 89% growth.
These growth figures are spectacular, yet IonQ remains unprofitable and its stock is valued at 109 times the following year's sales. Instead of investing in IonQ at these astronomical prices, it may be wiser to invest in two other growth stocks with more reasonable valuations: SentinelOne (S -1.16%) and Rocket Lab USA (RKLB -3.23%).
An AI-driven cybersecurity company: SentinelOne
SentinelOne is a cybersecurity firm planning to automate all human analyst positions using AI algorithms across its Singularity XDR (extended detection and response) platform. The company believes that these automated systems are quicker and less error-prone.
SentinelOne offers its XDR services through a combination of on-site appliances and cloud-based services. This hybrid strategy protects it from internet outages that could affect fully cloud-based cybersecurity services such as CrowdStrike's Falcon.
SentinelOne's revenue more than doubled in fiscal years 2021, 2022, and 2023 (ending in January 2023). It continues to attract large-scale customers (generating at least $100,000 in annual recurring revenue) while maintaining a customer retention rate above 100%. However, its revenue growth decelerated to 47% in fiscal 2024 due to macroeconomic challenges in securing new contracts. It is estimated to grow by 32% in the current fiscal year.
Despite this slowdown and persistent losses, SentinelOne is still expected to post a compound annual growth rate (CAGR) of 27% from fiscal 2024 to 2027 as the macro environment stabilizes. Its stock remains undervalued at less than 8 times next year's sales, while its net losses are expected to decrease as economies of scale become a factor. Its low enterprise value of $7 billion also makes it an attractive takeover target for a larger industry competitor.
A promising space stock: RocketLab USA
RocketLab develops reusable rockets for NASA, the U.S. Space Force, the Swedish National Space Agency, and other prominent clients. Its well-known Electron orbital rocket, launched 57 times over the past seven years, can carry loads of up to 300 kilograms. However, its forthcoming Neutron rocket will have a much larger maximum lift capacity of 15 metric tons when it is launched next year.
RocketLab launched six Electron rockets in 2021, nine rockets in 2022, and ten rockets in 2023. It launched another twelve rockets between January and September 2024 and ended the third quarter with a contract backlog of $1.05 billion. Its revenue doubled by 240% in 2022 but grew only 16% in 2023. It is projected to increase by 77% in 2024.
At an enterprise value of $13 billion, RocketLab's stock may seem expensive at 30 times next year's sales. However, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 55% from 2023 to 2026 as it expands its launch activities. Additionally, RocketLab should gradually reduce its net losses as it scales up its operations. RocketLab faces intense competition from SpaceX and other private start-ups, but there could be ample space for all players to thrive in this burgeoning market.
After analyzing the current financial market, some experts suggest that instead of investing in IonQ with its high valuation, considering other growth stocks like SentinelOne and Rocket Lab USA might be a more sensible choice. Despite experiencing a revenue growth deceleration, SentinelOne still anticipates a significant CAGR of 27% from 2024 to 2027, making its stock undervalued. On the other hand, Rocket Lab USA, with its projected revenue growth of 55% from 2023 to 2026, could be an attractive investment option, despite its seemingly high valuation. Investing in these stocks could provide an opportunity to diversify one's portfolio, spreading the financial risk associated with investing in a single high-valued company like IonQ.
