Better AI Stock: IonQ vs. Rigetti Computing

When investors discuss the artificial intelligence (AI) market, they often focus on GPU manufacturers such as Nvidiagenerative AI software developers like OpenAI, AI-powered cloud giants like Microsoftand data center and network chip manufacturers like Broadcom. Yet these investors will often overlook the potential AI windfall for the burgeoning quantum computing market.

Quantum computers can process binary bits of zeros and ones simultaneously, while traditional computers process these bits individually. This difference enables quantum computers to process larger amounts of data at a much faster rate, but they are still larger and more expensive and generate a higher error rate than traditional computers. That’s why they’re still not as widely used for processing AI applications as high-end data center GPUs.

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But over the next few years, quantum computer companies plan to miniaturize their chips, reduce their error rates and make them cheaper to manufacture. They are also delivering more of their quantum computing power as cloud-based services. These improvements could make them much more useful for demanding AI applications.

Two quantum computing companies that can benefit from this trend are IonQ (IONQ -23.43%) and Rigetti Computing (RGTI -31.21%). Let’s see which of these early moves might be a better investment.

The differences and similarities between IonQ and Rigetti

IonQ sells three types of quantum computing systems: its top-of-the-line Aria quantum system, its commercially oriented Forte system, and its local Forte Enterprise system. It also delivers its quantum computing power as a cloud-based service. It mainly sells its products and services to large government customers and universities.

It has also developed a “trapped ion” technology that could potentially shrink the width of a quantum processing unit (QPU) from a few feet to a few inches. This miniaturization process could pave the way for the development of cheaper and more powerful quantum computing systems in the future.

Those efforts suffered a setback, however, when its co-founder and chief scientist Chris Monroe — who had pioneered the trapped-ion process — unexpectedly resigned last year. Still, IonQ continued to grow after Monroe’s departure, installing more systems, signing new government contracts and securing new AI partnerships.

Rigetti designs and manufactures its own QPUs, and it lets developers write their own quantum algorithms on its Forest cloud platform. This one-stop-shop model makes it a “full stack” quantum computing company.

Like IonQ, Rigetti also aims to develop cheaper and more scalable QPUs for commercial customers. But Chad Rigetti, who founded the company in 2013, stepped down as its president, CEO and director in December 2022. The abrupt departure was alarming, but Rigetti subsequently allayed those fears with two major product launches.

Last December, Rigetti launched its Novera QPU, a 9-qubit commercial version of its own quantum computer, which costs $900,000. Several large government and research customers have already ordered these QPUs. It also recently deployed its first 84-qubit Ankaa-3 system, which is designed to detect more than 99% of its processing errors, and it plans to deploy a more powerful 100-qubit system with an even higher error detection rate in year.

Which company has a brighter future?

IonQ and Rigetti both went public by merging with special purpose acquisition companies (SPACs), missing their rosy pre-merger estimates. IonQ only generated $22 million in revenue by 2023, compared to its original target of $34 million. Rigetti generated just $12 million in revenue in 2023, which also largely missed its original guidance of $34 million.

Still, both stocks hit record highs in December 2024 as bulls applauded their recent gains. From 2023 to 2026, analysts expect IonQ’s revenue to grow at a compound annual growth rate (CAGR) of 89% to $148 million, and Rigetti’s revenue to rise at a CAGR of 43% to $35 million.

Both companies are expected to remain unprofitable for the foreseeable future. IonQ and Rigetti could also continue to dilute their own shares to raise cash and cover their stock-based compensation expenses. IonQ has only increased its stake by 10% since the SPAC merger, while Rigetti has increased its stake by 69% since its debut.

Both stocks are richly valued. With an enterprise value of $8.8 billion, IonQ is already trading at 59 times its projected 2026 sales. Rigetti’s enterprise value of $4.3 billion equates to a whopping 123 times its projected 2026 sales.

The better buy: IonQ

The quantum computing market could still grow at a CAGR of 34.8% from 2024 to 2032, according to Fortune Business Insights, with smaller chips and more efficient error detection rates. IonQ and Rigetti could benefit from the secular expansion, but investors should be aware of their soaring valuations. I wouldn’t rush to buy any of these speculative stocks, but IonQ’s superior scale, higher growth rates, milder dilution, and lower valuation clearly make it a better buy than Rigetti right now.