Quantinuum vs. IonQ: Why One Major Wall Street Firm Says This Stock Is the Better Bet

Morgan Stanley names its top quantum stock

Analysts at Morgan Stanley recently named their top pick in the quantum computing sector, selecting the recent initial public offering (IPO) Quantinuum as their favorite. Analyst Joseph Moore upped his rating on the stock from equal-weight to overweight, although he lowered his price target on the stock from $78 to $68. At the same time, Moore kept an equal-weight rating on rival IonQ, while reducing his price target from $49 to $43.

Morgan Stanley sees quantum computing potentially being a more than $100 billion market by 2040. While the analyst admitted that picking winners in the space is still early, it has developed a framework to assess quantum stocks based on technology, execution, manufacturability, and commercialization. Moore said that technology carries the most weight among the four factors, and that Quantinuum shines in technology and execution.

Moore noted that Quantinuum has hit Stage 7 of Morgan Stanley's eight-stage error-correction framework, the highest of any pure-play company it follows, and that its error-correction operations are 4.3 times more reliable than those without it. IonQ, meanwhile, has only reached Stage 4 of its framework.

The Morgan Stanley analyst also praised Quantinuum's execution, noting that it has developed three generations of its quantum computers deploying the same fundamental technology. Despite that, Moore noted that the stock trades at the lowest price-to-sales multiple of any stock in the group based on 2030 revenue estimates. Moore forecasts that Quantinuum will generate $2 billion in revenue in 2030 compared to $1.8 billion for IonQ.

Where IonQ has a slight edge, according to Moore, is in manufacturability. However, he noted that the company's best error-correction results have not yet been used with its Superion machines.

Quantinuum vs IonQ

When it comes to accuracy, which is one of the biggest problems that needs to be solved with quantum computing, Quantinuum and IonQ are leading the pack. IonQ holds the record for physical qubit performance, having achieved 99.99% two-qubit gate fidelity, while Quantinuum has reached 99.92%. However, where Quantinuum shines is with quantum error correction, which gives it the lead in logical accuracy. With its new Sol system to be introduced next year, Quantinuum is looking to reach 99.999% logical fidelity.

While Quantinuum is ahead with quantum error correction, IonQ has just announced a recent breakthrough in this area. Last month, it announced that it has successfully tested the industry's first end-to-end, real-time quantum error-correction decoder that runs on an ordinary central processing unit. It still must incorporate this technology into its architecture, but it should help close the gap.

Quantinuum and IonQ both use the trapped-ion approach with their quantum machines. However, the biggest difference is that IonQ has switched from deploying bulky lasers to manipulate its trapped ions to using microwave antennas directly embedded into its chips. This should ultimately be a big advantage for IonQ when it comes to scalability and commercial viability. The reason is that traditional trapped-ion systems like those from Quantinuum require hundreds of tightly aligned optical laser beams, which creates an issue with scaling these systems.

Equally important, IonQ's LightSynq acquisition gives it high-bandwidth photonic interconnects. Similar to how Nvidia's NVLink system allows multiple graphics processing units to bypass data transfer bottlenecks, photonic interconnects allow quantum chips to work together seamlessly as a single machine.

Meanwhile, while Quantinuum excels in quantum software, IonQ is trying to capture the entire quantum ecosystem. Its acquisition of the quantum foundry SkyWater should allow it to advance prototypes more quickly and eventually help it scale. It has also made important acquisitions in quantum security, transmission, and sensing as it seeks to become a complete quantum company.

Overall, it is still early, and which technology or company wins out is still very much up in the air. However, I would not write IonQ off just yet, and the best way to play the quantum space is probably by holding a basket of stocks in the sector, with both IonQ and Quantinuum at the top of the list.