AST SpaceMobile (NASDAQ: ASTS) and IonQ (NYSE: IONQ) are both speculative growth stocks that trade at sky-high valuations. AST, a developer of satellites for cellular communications, trades at 175 times this year's estimated sales. IonQ, a developer of quantum computing systems, trades at 36 times this year's sales. Both companies are expected to remain unprofitable for the foreseeable future.
AST SpaceMobile and IonQ both seem like risky stocks to hold as high interest rates and other macro headwinds rattle the markets, but they could also grow into their valuations if they achieve their ambitious goals. So, which of these speculative plays is more likely to become a hot breakout growth stock over the next few years?
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A make-or-break year for AST SpaceMobile
AST SpaceMobile was founded in 2017 and went public by merging with a special purpose acquisition company (SPAC) in 2021. It's building a new low-earth orbit (LEO) cellular broadband network with a "satellite constellation" to fill the coverage gaps for traditional satellites. Unlike SpaceX's Starlink, which mainly provides mid-band spectrum coverage for underserved areas, AST offers lower-band connections that can be directly accessed by everyday 2G, 4G, and 5G smartphones.
AST launched its first BlueWalker 3 prototype satellite in September 2022, and it's already completed several 4G and 5G speed tests. Those successful tests attracted the attention of AT&T and Verizon , which both signed cellular broadband agreements with AST this May.
The next catalyst for AST will be the planned launch of its first five commercial Block 1 BlueBird (BB) satellites next month. That closely watched event, which had been postponed by a series of production delays, will either make or break AST's stock.
If successful, it will mark the first major step toward commercializing its business. It will also indicate that analysts' expectations for AST to generate $811 million in revenue in 2026 -- which would represent a compound annual growth rate (CAGR) of 612% from its estimated revenue of $16 million in 2024 -- might just be achievable. But if the launch fails or gets hit by more delays, AST will need to burn even more cash as analysts rein in their expectations.
On the bright side, AST won't run out of cash anytime soon. It ended the first quarter of 2024 with $210 million in cash and equivalents -- thanks to a fresh round of financing from AT&T, Alphabet 's Google, and Vodafone this January -- and it still had a low debt-to-equity ratio of 0.8. But for now, investors might want to wait for it to post its second-quarter report on Aug. 13 to see how much cash it's actually burning ahead of the BB1 launch.
IonQ still has a lot to prove
IonQ was founded in 2015 and went public by merging with a SPAC in 2021. At the time, it called itself the only "public pure-play" on the quantum computing market. Unlike traditional computers, which process data with binary bits of zeros and ones, quantum computers process both simultaneously. That approach is much faster, but it requires more power with more expensive hardware. Quantum computers also spit out more errors than traditional binary computers.
IonQ mainly provides quantum computing power as a cloud-based service to big enterprise and government customers. It's also trying to miniaturize quantum processing units (QPUs) with a "trapped ion" process that could shrink existing quantum systems from several feet to several inches wide. That approach could make it cheaper to scale up quantum computing systems and reduce their error rates.
However, the bears claim IonQ has been exaggerating its miniaturization capabilities and actually running its cloud-based services on Honeywell 's quantum computing machines instead of its own first-party systems. It's also difficult to compare IonQ to its peers because it reports its computing power with a proprietary AQ (algorithmic qubit) metric instead of the industry-standard quantum volume (QV) metric. Last October, IonQ's co-founder and chief scientist, Chris Monroe, who developed the trapped-ion technology, abruptly stepped down to return to an academic position.
Honeywell has also been reportedly mulling an initial public offering (IPO) for its quantum computing spin-off, Quantinuum, at a $10 billion valuation. If that happens, many investors could abandon smaller players like IonQ, even though analysts still expect it to grow its revenue at a three-year CAGR of 91% from $22 million in 2023 to $153 million in 2026.
At the end of the first quarter, IonQ still had a low debt-to-equity ratio of 0.1 and $375 million in cash, cash equivalents, and marketable securities, but it had fewer near-term and long-term catalysts than AST SpaceMobile.
The better breakout stock: AST SpaceMobile
Both of these stocks are risky, but AST SpaceMobile has a clearer path toward generating multibagger gains than IonQ. If you believe AST can successfully launch its BB1 satellites in September, it might be smart to start a small position right now and average into the stock as it expands its satellite constellation. As for IonQ, it needs to prove it can actually miniaturize its QPUs, scale up its business, and stay competitive in an increasingly crowded niche market.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in AT&T. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Verizon Communications and Vodafone Group Public. The Motley Fool has a disclosure policy .
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