Society is on the cusp of game-changing technologies that will likely revolutionize how the world works over the coming years. Specifically, I'm talking about artificial intelligence (AI) and quantum computing.
It's entirely possible that quantum computing creates and elevates technologies, including AI, to new heights. Investors are often forward-thinking and thus have leaned into some emerging companies in these fields. IonQ(NYSE: IONQ) is racing to develop quantum computing systems for commercial use. The company's stock has risen nearly 200% since late 2021.
Meanwhile, SentinelOne(NYSE: S) is a cutting-edge cybersecurity company that uses AI to hunt for potential threats. Unfortunately, the stock has lost over half its value since it began trading in 2021. But the past doesn't necessarily predict the future. Here is why I predict that SentinelOne will be worth more than IonQ by 2030.
The market doesn't hold all companies to the same standard
It's weird how investors seemingly get hung up on specific aspects of individual companies. There is much to like about SentinelOne, which has won numerous awards and recognition for its advanced security platform. It uses artificial intelligence to look for potential cyber threats autonomously. SentinelOne has also worked to expand its products and services, including an AI agent (Purple AI) that is like ChatGPT, except it assists you in navigating the company's security platform.
The big knock on SentinelOne is that while revenue continues to grow swiftly, including 29.5% revenue growth last quarter, its lack of profitability has soured investors on the stock relative to SentinelOne's competitors, like CrowdStrike Holdings. It helps explain why CrowdStrike trades at a lofty enterprise value-to-sales ratio of nearly 25, over 3 times more expensive than SentinelOne, despite the latter growing revenue faster.
Ironically, investors have piled into IonQ on what seems like little more than hype for quantum computing. Despite having just $43 million in sales over the past year, its $7.7 billion market cap exceeds SentinelOne's.
IonQ's five-year outlook could underwhelm
The challenging part of this for IonQ is that the world may not be ready for quantum computing anytime soon. Quantum computers are still brand-new, and large technology companies developing them, including Alphabet and Nvidia, agree that practical quantum computers could be years away.
Image source: Getty Images.
That's why some industry experts don't see the quantum computing market taking off until 2030 to 2040. Could that change? Of course. But is there a rush to get into stocks like IonQ without knowing what their market share or eventual profits may look like? Perhaps not.
Why SentinelOne may eventually pull ahead of IonQ
Numerous factors can impact short-term stock prices, but revenue growth and earnings play a bigger role in a stock's performance over time.
SentinelOne's revenue growth has slowed over the past few years, but the business seems likely to grow at a double-digit pace for the foreseeable future. Analysts expect 23% revenue growth for the company's fiscal year. It's encouraging that the company's profit margins have improved as revenue grows. If that continues, the business will eventually turn a profit.
Additionally, SentinelOne has been free-cash-flow-positive over the past four quarters, has zero debt, and has $721 million in cash. That means investors should have no concerns about the company's financial stability while waiting for earnings to turn positive.
There's a good chance that SentinelOne, a growing company with a highly regarded product in a hot cybersecurity industry, will earn a higher valuation as profitability approaches. Double-digit revenue growth and its valuation doubling over the next five years, which would still value it far below competitors like CrowdStrike Holdings, would generate outstanding returns. Meanwhile, IonQ likely has more downside risk than upside potential without meaningful revenue.
Between these two, SentinelOne is the clear winner moving forward, and it will likely be worth far more by 2030.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
