It’s been a little while since I looked at one of the techno-growth hypefest pitches from Michael Robinson over at Nova-X Report, so when a bunch of readers sent in questions about his “Infinity Chamber” spiel I decided to take a look for you today.

It’s all about quantum computing, which isn’t a big surprise — that’s been the next big thing for computing for years now, with immense hope that it will make new kinds of computation possible, and help to solve many of the world’s problems.

It’s been hard to get it out of the lab over the past couple decades, though, and to begin developing quantum computing hardware and systems that make a real world difference… so, are we there now?

Maybe. It’s early yet, but maybe. Some commercial quantum computing services are available now, and lots of large companies and small labs are working on what they hope will be the most effective designs and strategies to harness the power of the Qubit. And, of course, some of those are going to be ideas that you and I can invest in… so that’s what’s being teased today, one of those public Quantum companies.

It’s a short list at this point, so it won’t be a huge challenge for the Thinkolator… but let’s see what clues Robinson drops in his presentation. The pitch is about the “infinity chamber,” where quantum particles can be isolated at super-low temperatures, and about the startup that created this chamber…

“And at the center of it all sits the tiny startup that created the Infinity Chamber. And talk about a dominant advantage…

“They’ve Got over 60 Patents and Applications Protecting Their Intellectual Property!”

So yep, it’s one of relatively new companies, not a tease about some of the biggies who are investing in quantum (like Alphabet, Intel, etc.)…. more from the ad:

“This Tiny Startup Offers the Very First Pure Play in History on This Breakthrough Technology in History!

“… they just began trading days ago!

“And the great part is: Instead of doing an traditional IPO, they went public using a backdoor strategy. It’s very low-profile, so almost no one knows about this company yet!”

Well, you’d have to assume that “backdoor strategy” was probably a SPAC merger, since that’s how so many speculative tech stocks have come public over the past couple years. Which one? Again, it’s a short list… the two most frequently cited “quantum computing” stories are Rigetti and IonQ, both of which have come public through SPAC mergers recently.

Well, I should correct that, IonQ has completed its merger and gone public (ticker IONQ, naturally), and Rigetti has agreed to go public through a SPAC merger but has not yet completed that merger — they’re aiming to merge with Supernova Partners Acquisition II (SNII), and assuming the deal goes through they’ll end up with the ticker RGTI.

So it’s probably one of those… but I don’t want to spoil the surprise just yet. More clues…

“… we just sat down with the CEO for a one-on-one meeting.

“… this gentleman is the real deal.

“He started working at the MIT Artificial Intelligence Lab – get this – when he was 16 years old. He founded a software company that was ultimately sold for over $500 million. And most recently, he was the genius behind Amazon Prime’s delivery logistics.”

We’ll backtrack a bit here, they go into the history of quantum computer development…

“Classic computers are fantastic – no question about that. Modern society literally runs on computers!

“But in order to solve the biggest challenges facing mankind, we need something with exponentially more power.

“And the story behind the Infinity Chamber is actually quite fascinating…

“While the rest of the world was focused on building faster supercomputers, two scientists – one from Harvard and one from MIT – started thinking outside the box.

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“Those two scientists started asking themselves, ‘What if – instead of using traditional bits to conduct calculations like a traditional computer does – what if we scale down to the quantum level and use atoms instead?’

….

“And while one of the scientists behind the Infinity Chamber was picking up a Nobel Prize…

“The second scientist was launching a new startup company.

“And that’s the same startup we’re talking about today – the company that created the Infinity Chamber.”

OK, fine, we can spill the beans here — Robinson is teasing IonQ (IONQ), and it’s not a big surprise. That’s the first public “pure play” quantum computing company, they completed their SPAC merger back in October, and it’s a great story.

As an investment, though, it’s a great future story. They do have a quantum computer that is used as a cloud service, available though the major cloud platforms, but it’s very early days in commercializing the service… and, of course, making it faster and more accurate and more robust. The future is coming at us fast, but it’s not instant.

The “Infinity Chamber” is just a made-up term for IonQ’s technology, they use ionized yttrium atoms they “trap” in a chip, called a linear ion trap — they explain the technology pretty well here, it’s certainly cool and interesting.

Here’s what I said when someone else was teasing IonQ a few months ago, when it was trading in the $20s (it’s down below $10 again now):

Like most SPACs we’ve seen teased over the past year or two, this one is based on projections several years out into the future — IonQ believes they have the most reliable quantum computing platform, mostly because of they way they handle errors in the processing, but most of the hope for the business is based on continued scientific progress in their R&D labs that hasn’t happened yet. Not unlike some of the battery or other EV startups who profess to have an edge, but require patience.

It is indeed an impressive leadership team, and the story sounds impressive — this is how they describe themselves:

“Founded on more than 25 years of pioneering academic research, IonQ is developing trapped-ion quantum computers, bringing this powerful technology out of the lab and into commercial, industrial, and academic applications. Ionized atoms are the heart of our quantum systems, and as a result, we believe our computers can perform longer, more sophisticated calculations with fewer errors than any quantum computer yet built.

“Poised to be the first mover and a leading player in the quantum revolution, IonQ is deeply committed to expanding quantum access to more people in more places. We lead the market with the first and only quantum hardware integrated with all major cloud platforms, quantum programming languages, and quantum software developer kits, empowering people from all walks of life to solve real-world problems and optimization challenges across chemistry, medicine, finance, logistics, and much more.

“With a business model aligned to rapid quantum market growth, an unparalleled technological advantage, and a deep history of quantum innovation and leadership, we believe we are well-positioned to lead the way forward as quantum computing changes the world.”

And they have gotten off to a good start this year, it appears, with a fair amount of bookings for their quantum processing power, particularly through the big three cloud providers, and that has led to them tripling their “bookings” forecast for 2021. That’s still not a relevant number in the context of the company’s size, they’re talking about $15 million in potential revenue booked in 2021, and that revenue will take years to actually be recognized and hit the books, but it’s at least a nice indicator of interest — more SPACs have reduced their immediate forecasts than raised them after the deal goes through, in my experience, so that’s a positive. They now expect to have $60 million in bookings in 2024, according to their latest presentation. (If you want to go back to the original promise, their first SPAC deal slide deck is here, with their 2025-2030 projections).

The stock is basically a bet on 2025, which is when they have been projecting the huge scale leap in production that brings them to $237 million in revenue, and continuing to grow rapidly from there, and they say they should have enough cash from their PIPE and from the SPAC cash pile (a total of $600 million or so) to push forward with their R&D and scaling efforts (they didn’t have much in the way of SPAc redemptions when the deal closed in late September).

I wrote those words in November, and the story hasn’t really changed meaningfully in the past couple months. They did report their first quarter as a public company, with some additional bookings to report, but not nearly enough to move the needle… and they continue to make progress in developing and improving their quantum computing platform.

Will IonQ or Rigetti be big winners in the quantum race? Will it be Google or Amazon or Microsoft or Intel that dominates instead, or one of the dozens of quantum computing startups that are still in the early stages? (Tons of names are venture and grant funded at this point, and only in a few cases have these moved past “series A” funding… with private money happily throwing itself at the next quantum idea, not many are anywhere near going public). I don’t know, of course, but it’s getting to be a bit more “real” now.

Here’s a little more from Robinson’s spiel… this is all the sales pitch take, of course, so you’ll want to temper it with your own skepticism… this is about the folks behind the company:

“… the founder of the company pioneered the quantum industry. While most of the world was building supercomputers, he saw the need for an entirely different approach… and along the way, he’s built an entire management team that’s like a who’s who of tech superstars.

“The CEO began his tech career at age 16 in the MIT Artificial Intelligence Lab. Then, started a company that ultimately sold for over $500 million. He created the entire Amazon Prime logistics platform.

“He’s not even the smartest guy in the building! The vice president of software built the quantum team at Google….

[and] the genius who won a Nobel Prize? Get this…

“He’s on the Advisory Board!”

That founder is Chris Monroe, in case you want to do some research… the Nobel Prize winner (2012) was David Wineland, the two worked together on some early quantum projects, and yes, Wineland did join the advisory team at IonQ in 2020.

And some talk about their actual tech:

“they recently developed the most powerful quantum computer in the world – a 32-qubit masterpiece…. this quantum machine is 158 million times faster than the world’s fastest supercomputer…

“… their biggest competitors – including Google, IBM, Microsoft, and Amazon – have all formed alliances with this tiny startup. Get this – these global titans are now reselling this tiny startup’s quantum technology through their own cloud services!”

That’s true, though the goalposts move quickly when you’re setting new records for “largest” or “fastest” or “most powerful” quantum computer — particularly with governments and huge companies pouring billions of dollars into the research. Some startups have claimed to have developed 256-qubit quantum computers, Google announced a 54-qubit processor in 2019, Chinese researchers say they surpassed that with a 70-qubit machine last summer, and then in November IBM said they had made a 127-qubit quantum computer. These are not all apples-to-apples comparisons, I’m sure, and those lab achievements are not the same thing as a computer that’s available for commercial use, like IonQ’s (albeit limited use so far), but the science is moving fast.

And, to be fair, the ad does make that point:

“This tiny startup has projected they will hit revenue of $522 million by 2026. Currently, they’re at $5 million in revenue.”

More fairly, they’re at $5 million in bookings — or they were, it’s actually a little over $15 million as of the November quarterly update. In terns of actually realized revenue, they’re still way below $1 million… this is very much at the “baby steps” stage.

That doesn’t mean it can’t get exciting, or that they won’t be a huge winner at some point, just a reminder that they’re just starting to commercialize their technology, and anything beyond today includes a fair amount of guesswork. It would not be shocking if bookings follow the rapid growth forecast they’re projecting, growing at least 300% by 2024, but even at that rate they’d have only $60 million in bookings (which will become sales and revenue in the years after that). That’s not a lot for a company that’s valued at $2 billion… even if, yes, $2 billion sounds a lot better than the $5 billion they reached at the peak late last year.

And before you get to too much daydreaming, of course, we should note that being a pioneer in a new kind of computing might be fantastically valuable… but we’re also way too early in the game to have much confidence in which projects will be the winners. The future leaders may well be still in a lab, or venture funded projects that we’ve never heard of, or beneficiaries of the giant firehose of money that companies like Alphabet are pouring into their quantum projects.

So that’s your buzz kill moment, in case you need to temper your enthusiasm after the hot sales pitch. We remember the huge winners of the personal computer revolution, like Microsoft and Intel, and even IBM and Apple, but we conveniently forget that there were hundreds of other computer companies in the 1970s and 80s who thought they had a better idea, too, and raised and spent a lot of money trying to develop those ideas and products (that’s usually called “survivorship bias” — we remember IBM and Intel and wish we had bet big on them when they were small, but of course we wouldn’t have been so silly as to make that same bet on Digital Equipment). Every successful tech company that we know was likely built on or beat out dozens of failures in the same or similar businesses that we’ve never heard of — maybe we wouldn’t have had the iPhone if General Magic and Palm Pilot hadn’t advanced some of those ideas 15 years earlier, with some temporary success, but General Magic and Palm did not turn out to be the generational investment opportunities… they rose and fell quickly, and you would have had to be lucky or prescient to make a profit from them.

Optimism is an important part of being a growth investor, and I wouldn’t talk you out of placing a speculative bet on any of the quantum hopefuls… I may do so myself at some point, it’s fun and sometimes lucrative to speculate on the next big thing. Just don’t go in with too much certainty that IonQ, or Rigetti, of whoever the next one is to go public, will be the winner… because that feeling of certainty is what makes people risk too much money on speculative ideas.

IonQ’s original SPAC merger presentation is here — and like most SPAC deals, they make some long-term forecasts to justify the valuation. In this case, IonQ forecasts some leaps forward in both technical progress that ramp up the commercial market over the next 5-10 years, and also specifically forecasts some meaningful revenue growth kicking in over the next several years, leading to the company generating positive EBITDA by 2025 and $523 million in projected revenue in 2026. That means the current valuation is about 10X forecasted 2026 EBITDA, and about 4X forecasted 2026 sales… or, if you want to stick with numbers that are a little closer and might be more predictable, about 60X forecasted 2023 revenues.

None of those are valuations that mean anything, of course, the revenue almost certainly won’t follow that path they’ve carefully laid out over the next five years — but it gives you an idea of what they’re hoping to do, at least, and most of us need some justification and some numbers to fall back on if we’re going to bet on an idea. But don’t forget that that’s what you’re really doing here, betting on the very earliest stages of commercialization of a new idea… the possibilities are almost infinite, they could grow far faster, they could be taken over by a big player in a few years, or they could fail to meet advance the technology and descend into irrelevancy, either quickly or slowly.

So yes, I remain tempted, and may eventually dabble in some of these quantum computing names as I learn more about them… but unless you’re just trying to trade the headlines, you’re probably better off placing these kinds of stocks in a hidden portfolio and ignoring the share price and the news for at least a few years. Companies that don’t have any real financials yet are like sailboats that don’t have enough ballast in the hull, they tend to list wildly to either side whenever the market provides wild waves of speculation and panic.

And Robinson also hints at another way to buy into IonQ…

“The first way is to buy shares of this tiny startup. And for most people, that’s going to be enough for a shot at life-changing gains.

“At the same time, I’ve identified a second way to play this company that could be even more lucrative….

“You can buy and sell a special type of security – just like you would a regular stock. And the upside potential can be astronomical….

“I do want to point out that these are not for everyone. They are highly volatile and can go down just as fast as they go up. So they’re for folks who want to take a more aggressive, speculative approach.”

As you probably know, that would be warrants — just about every SPAC was launched with warrants attached, since those serve as the sweetener that gets people to tie up their money in a blank check company with no promise that they’ll end up finding a great company to buy. IonQ has a typical SPAC warrant, and it is publicly traded (ticker IONQ/WS or IONQW on most platforms) and looks like it’s pretty standard — owning one warrant gives you the right to buy one share of IONQ for $11.50 for five years from the day they completed the business combination (so, the expiration is in October of 2026). One sticking point there is that like most SPAC warrants, this has an early redemption clause — the company can redeem your warrants if the stock trades above $18 for a few weeks (20 days out of 30 is the technical limit). IONQ has probably met that criteria, since it traded in the $20s for much of November and December, but I don’t think they announced a redemption.

Currently, those warrants trade for about $3 each — so they’re not particularly cheap (I love warrants, but the SPAC mania of the past couple years drove a lot more folks to love them, so they don’t often trade at bargain prices). That means they’d be “in the money” once IONQ is above $14.50, and might be called away at $18-$20, so they should provide meaningful leverage if IONQ does well… if IONQ goes quickly back to $20, those warrants should triple as the stock doubles. But, of course, if IONQ drifts down from the current $9.50 to, say, $5 over the next couple years, the warrants could drift down to trade for 20-30 cents, and if the stock disappoints for five years they could expire worthless. Leverage works both ways.

If you want to get away from that early redemption clause, and think IONQ is going to do a lot more than double in the next couple years, you could always dabble in options, too — a call option acts a lot like a warrant in terms of leverage (other than the fact that you have to buy them in 100-share contracts, while warrants can trade in any number), but a call option contract is standardized and the company doesn’t control it and can’t redeem it.

One downside with options is that they don’t go out that far — SPAC warrants are almost all for five years, but the longest dated options now are for January of 2024. You could buy IONQ options with a $12 strike price that expire two years from now, similar to the warrant’s $11.50 strike price, but they cost a little more than the warrants, those options are trading right now at about $4 per share (or $400 per options contract). The warrant obviously makes more sense math-wise, you get more leverage, at a cheaper price, for five years instead of two… but the option can’t be redeemed out from under you, so if the stock goes bonkers, hitting $50 or $100 in 2023, the warrants will probably have been long gone and redeemed at a lower price, but the options will still be traded and could have more spectacular gains. On the other hand, if IONQ stays near this $10 level for a few years and has that dreamed-of surge to $50 much later, in 2025 or 2026, the warrants might work out better. Everything has its benefits and drawbacks.

And that’s all I’ve got on this one for you, dear friends — I’m sure we’ll continue to hear more quantum computing teases as the technology moves forward and more companies come public, but for now we’ve got IONQ to work with.. so whaddya think? Ready to bet on a possible future leader, think there are better stories in the space, or does the idea of betting on a 2025 or 2030 story seem too risky? Let us know with a comment below… and thanks for reading!

Disclosure: Of the companies mentioned above, I own shares of Amazon and Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.