AST SpaceMobile (NASDAQ:ASTS) And IonQ (NYSE:IONQ) are both speculative growth stocks trading at astronomical valuations. AST, a developer of satellites for cellular communications, trades at 175 times this year’s expected revenue. IonQ, a developer of quantum computing systems, trades at 36 times this year’s expected revenue. Both companies are expected to remain unprofitable for the foreseeable future.
AST SpaceMobile and IonQ both appear to be risky stocks as high interest rates and other macroeconomic headwinds rattle markets, but they could also grow into their valuations if they hit their ambitious targets. So which of these speculative stocks is more likely to become a hot breakout growth stock in the next few years?
A crucial year for AST SpaceMobile
Founded in 2017 and going public in 2021 through a merger with a special purpose acquisition company (SPAC), AST SpaceMobile is building a new low-Earth orbit (LEO) cellular broadband network using a “satellite constellation” to fill the coverage gaps left by traditional satellites. Unlike SpaceX’s Starlink, which primarily provides mid-range spectrum coverage for underserved areas, AST offers lower-range connections that can be accessed directly with everyday 2G, 4G and 5G smartphones.
AST launched its first BlueWalker 3 prototype satellite in September 2022 and has already completed several 4G and 5G speed tests. These successful tests caught the attention of AT&T And Verizonboth of which signed mobile broadband contracts with AST in May this year.
The next catalyst for AST will be the planned launch of the first five commercial Block 1 BlueBird (BB) satellites next month. This highly anticipated event, which has been postponed due to a series of production delays, will determine the success or failure of AST stock.
If successful, it would be the first major step toward commercializing the company. It would also show that analysts’ expectations that AST will generate revenue of $811 million in 2026 — which would represent a compound annual growth rate (CAGR) of 612% over estimated revenue of $16 million in 2024 — could be quite achievable. However, if the launch fails or is marred by further delays, AST will have even more cash to burn as analysts scale back their expectations.
The good news is that AST isn’t running out of money anytime soon. The company ended the first quarter of 2024 with $210 million in cash and equivalents – thanks to a new round of funding from AT&T. alphabetis Google, and Vodafone this January — and it still had a low debt-to-equity ratio of 0.8. But for now, investors may want to wait until the company releases its second-quarter report on August 13 to see how much cash it’s actually burning ahead of the launch of BB1.
IonQ still has a lot to prove
IonQ was founded in 2015 and went public in 2021 by merging with a SPAC. At the time, it described itself as the only “public pure play” in the quantum computing market. Unlike traditional computers, which process data using binary bits of zeros and ones, quantum computers process both simultaneously. This approach is much faster, but requires more power and more expensive hardware. Quantum computers also spit out more errors than traditional binary computers.
IonQ primarily offers quantum computing power as a cloud-based service to large enterprises and government customers. The company is also trying to miniaturize quantum processing units (QPUs) using a “trapped ion” process that could shrink the width of existing quantum systems from a few feet to a few inches. This approach could make it cheaper to scale quantum computing systems and reduce their error rates.
However, the bears claim that IonQ has exaggerated its miniaturization capabilities and actually scaled its cloud-based services to Honeywells quantum computing machines rather than its own systems. It’s also difficult to compare IonQ to its competitors because it reports its computing power using a proprietary AQ (algorithmic qubit) metric rather than the industry-standard quantum volume (QV) metric. Last October, IonQ co-founder and chief scientist Chris Monroe, who developed the ion trap technology, abruptly resigned to return to an academic position.
Honeywell is also reportedly considering an initial public offering (IPO) for its quantum computing spin-off Quantinuum at a $10 billion valuation. If that happens, many investors may abandon smaller players like IonQ, although analysts still expect the company to grow its revenue from $22 million in 2023 to $153 million in 2026 at a three-year compound annual growth rate of 91%.
At the end of the first quarter, IonQ still had a low leverage ratio of 0.1 and $375 million in cash, cash equivalents and marketable securities, but it had fewer short-term and long-term catalysts than AST SpaceMobile.
The better breakout stock: AST SpaceMobile
Both stocks are risky, but AST SpaceMobile has a clearer path to multibagger gains than IonQ. If you believe AST can successfully launch its BB1 satellites in September, it might be smart to open a small position now and average into the stock as the company expands its satellite constellation. As for IonQ, the company needs to prove it can actually miniaturize its QPUs, grow its business, and remain competitive in an increasingly crowded niche market.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has positions at AT&T. The Motley Fool has a position in and recommends Alphabet. The Motley Fool recommends Verizon Communications and Vodafone Group Public. The Motley Fool has a disclosure policy.
Better Breakout Growth Stock: AST SpaceMobile vs. IonQ was originally published by The Motley Fool
