IonQ Stock up 22% in July but Short Interest Mounts

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Key Points

• Investors have been turning to small cap stocks over the past few weeks, with the Russell 2000 Index up 11% so far in July.
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IonQ ( Nasdaq: IONQ ), an early mover in the emerging tech field of quantum computing, is the target of a tug-of-war among investors. On the one hand, the stock has risen 22% in July so far, trading in a range of $6.75 to $9.05 in the first half of the month. However, on the flip side, bears believe the deck is stacked against it and are betting against this quantum computing play in droves, with over one-fifth of IONQ shares outstanding controlled by short-sellers.

With a market cap of $1.8 billion, IonQ has captured the imagination of investors who are intrigued by the idea of highly powerful quantum computers , especially given the rise of blockchain technology. Additionally, the stock has been a target amid a broader sector rotation out of big-tech names and into small-caps and penny stocks, owing largely to an expectation that the Federal Reserve will make good on interest rate cuts sooner than later amid easing inflation. According to Fundstrat's Tom Lee , small-cap stocks are oversold and could skyrocket more than 50% in 2024, outpacing the Russell 2000's 27% gain over an eight-week stretch in Q4 2023.

However, while on the surface the bulls have wrestled back control of IonQ, the stock remains a far cry from its 52-week high of $21.60. Worse, short interest in IonQ stock has been building, as evidenced by 22% of shares outstanding currently being short despite no apparent headwinds to speak of. Shorts are seemingly not being swayed by sales, as IonQ's Q1 revenue results of $7.6 million were at the higher side of the spectrum and reflected a 77% year-over-year increase. Sales are also expected to continue to grow throughout the year.

Image Source: YCharts

Bulls vs. Bears

Quantum computing, where IonQ operates, is in the experimental phase, as these supercomputers have yet to make their way into the mainstream. Short sellers could be skeptics of quantum computing technology who simply don't believe the hype. Last year, IonQ prevailed in a class action legal battle introduced by former investors who accused the company of securities fraud. They alleged that IonQ, which went public in a $2 billion SPAC deal, wasn't forthcoming about the source of its bookings amid a report by Scorpion Capital, which had a short position on the stock as of 2022. The judge ultimately decided in IonQ's favor, dismissing the complaint without prejudice.

IonQ is expected to report its Q2 earnings results on Aug. 7, at which time the company should provide greater visibility into the rest of the year and determine whether the bulls or bears will maintain control.

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