Recommended reading! The most objective article about the short-selling event of quantum computing company IonQ

Produced by Photon Box Research Institute

 

Since May 3, the famous short-selling agency Scorpion Capital (Scorpion Capital) released a short-selling report on the NYSE-listed quantum computing company IonQ, the stock price of IonQ has fallen 21%.

 

The IonQ short-selling incident has caused a sensation on foreign social media. An investor who claimed to have a small long position in IonQ wrote anonymously on The Quantum Observer website, "At first glance, I don't know how to understand this 'report', it reads more like a madman's rant, and Not a document showing the results of 25 research interviews that revealed a (so-called) pattern of fraud. Scorpion Capital could hire a literate person to write it in some persuasive form, rather than something like The National Enquiry The newspaper (an American supermarket tabloid, the irresponsible media here) just discovered quantum computing.”

 

 "It's an interesting document that both captures really serious business issues and completely ignores technical/physics issues. I think it's all about a misunderstanding of what IonQ is or should be. I can't find it right now Got to that tweet, but I remember it was Nick Farina of EeroQ who identified IonQ as -- essentially, an R&D company funded through the open market. From that perspective, the vast majority of Scorpion Capital's complaints about IonQ are basically It's all irrelevant."

 

 “We can see the report’s unfamiliarity with the state of quantum technology from the interview questions. The interviewer vaguely believed that IonQ was a company that should have a real business model and was struggling to generate revenue and had a strong high quality products. This is not true of IonQ, and it should not be. The true state and limitations of IonQ technology are for anyone with expertise in quantum computing and anyone who peruses the S-1 or other listing documents It's more obvious to humans. Serious investors shouldn't be surprised by any technical content in the IonQ bearish report."

 

 

Here is the author's argument:

 

1. Irrelevant questions

 

 "I think most of it is basically non-problem, easy to spot, and crucially, the expected feature of a company like IonQ, is actually market-funded R&D."

 

1. Some physicists think quantum computing (QC) is impossible

 

“Some physicists (Gil Kalai, Victor Galitski, Sankar Das Sarma, and Mikhail Dyakonov) are strongly against the viability of QC and/or against the QC hype. Based on this evidence, the report suggests that all quantum computing is fake, not just It's IonQ. However, investors don't need to know anything about QC to evaluate these claims. Just because a few of these people think QC will never be successful and have a prestigious institution like Yale attached to their name , nor does it mean that we have to take their opinions completely. There are many very smart people on the other side who have staked their careers and reputations on the viability of QC, some of whom also happen to be at Yale (or Harvard) University, or University of Chicago, or Caltech, or UC Berkeley, or MIT, or University of Pennsylvania...) professors. It's a wash for me. Their arguments are recorded, but Without more conclusive evidence, non-experts should not be affected by this."

 

2. IonQ's QPU is terrible

 

Scorpion Capital accused IonQ of some problems with its machines: ①The gates have poor fidelity, the output is garbled, and they can't even calculate 1+1 without error.

 

② The volume is too large, not as small as IonQ claims. In fact, they're the size of an optical platform or larger, depending on what you think of as a quantum computer.

 

 ③ A beautified toy is not suitable for doing anything useful.

 

④ Completely unreliable, uptime is about 50%.

 

 ⑤ Slow auto focus.

 

 ⑥ There is no form with 32 algorithmic qubits.

 

⑦ can never be scaled with photonic interconnects.

 

 ⑧ Use too many screwdrivers?

 

In the author's opinion, the report is detrimental in several of these ways (①②⑥), and they specifically point out the footnotes in the IonQ investor presentation, and the S-1 (the SEC filing for the initial public offering of common stock) issued registration applications) directly acknowledge the text of many of these things. as follows:

 

 

That said, the issues mentioned above in the Scorpion Capital short report are all part of the filings that IonQ must file with the U.S. Securities and Exchange Commission (SEC). The authors say that literally any idiot with an internet connection can learn about IonQ by searching SEC filings. You don't need to be a sophisticated investor to find these things.

 

 In addition, these shortcomings of the IonQ hardware are also the focus. This company exists to address these issues as much as possible, and to find a new way forward when there is no way to fix it.

 

3. IonQ's deal flow and revenue sucks Scorpion Capital’s report states:

 

 ①IonQ's partners do not pay for the computing time on the IonQ machine.

 

 ②IonQ's partners are not satisfied with IonQ's hardware/software.

 

 ③ "IonQ's revenue and bookings were driven by spurious related party transactions and round-trip transactions, creating the illusion of commercial momentum prior to listing through a SPAC."

 

"That statement is actually irrelevant to me. The points are both relevant and irrelevant. If you're serious about building quantum computers, the whole point of going public with IonQ is to raise $5-6 billion for the next 4-6 Years of serious R&D to build something good enough to raise more money, or to attract business partners to pay for the hardware to raise money.”

 

"It doesn't make sense in my opinion to have partners pay for computing time. The point is that IonQ has $600 million in funding to recruit staff, find some real tech partners, and pay QC's before they run out of cash. There are some real, exciting advancements in technology."

 

"The reason I think this criticism is irrelevant is that, in theory, the pursuit of paid partners and the resulting publicity is a diversion of money and energy, not a solution to what will kill you in 4-6 years," the authors said. The problem of dead companies."

 

2. Issues that deserve attention In addition, the authors say, "While the Scorpion Capital report raises many inconsequential issues, there are also some real, systemic issues that absolutely must be corrected to improve IonQ's odds of survival beyond 2030."

 

1. The co-founders are not really committed to the development of IonQ

 

Both IonQ Chief Scientist Chris Monroe and Chief Technology Officer Jungsang Kim have somehow retained their (tenured) academic positions and large research teams, while also being co-founders of the company, with Professor Kim also being a company executive and board member.

 

 "I also think it's very strange," the authors said. "I've long assumed that Monroe and Kim will focus primarily on IonQ, because for them the company gets tens of millions of dollars in venture capital, which will also sacrifice their Academic labs, graduate and postdoc training. But based on the Scorpion Capital report, my assumptions are incorrect. Chris Monroe is at Duke and IonQ is in Maryland. It’s a bit odd.”

 

 He questioned, "Since when did being an executive of a research-based company with a market capitalization of over $1 billion be considered a part-time job? How did the serious-looking venture capitalists take this and decide it's good? Why did the board allow this to happen? IonQ's long-term success is fundamentally dependent on sound technical and scientific leadership, where investors' wealth is at stake, and we have to pretend it's okay? The fidelity of the IonQ machine There hasn't been an increase over the years, is this the result of insufficient technical leadership at the highest level?"

 

2. IonQ was unable to retain high-profile employees

 

Executives like Dave Bacon, Denise Ruffner, etc. were quite high-profile at the end of 2020, but they basically left the company in about a year, a change that was fairly quick for the VP position. While they haven't issued a public statement blaming IonQ, the rumors move fast and you don't see this happening very often.

 

"Dave Bacon has a great reputation in the space, so if IonQ can lure him from Google, but can't keep him, that's not a good sign. While individual departures don't mean much, the two of them are Departures within a few months, coupled with leadership being questioned, is very bad in my opinion."

 

3. Hype?

 

 Much of the short report is about how IonQ's press release and CEO Peter Chapman's statement shrugs off IonQ's true "results," if any. For example, a PR article by IonQ mentions an "expected 4 million quantum volume". "I'm not sure how serious the CEO's overstated public statements are. The report says he lacks leadership and his actual knowledge of quantum is non-existent."

 

 “I think the effect of the constant hype is mainly that it distracts scientists and engineers, and their work is misinterpreted. Also, does IonQ really need a PR department and a CEO like this? These are effective or efficient with limited resources Utilize? Should these resources really be devoted entirely to solving the vast number of extremely difficult technical problems facing IonQ?

 

3. Conclusion

 

 In response to the above summary, the author stated, "I have written about the valuation of IonQ in the past. The point is that there is no compelling reason for it to be valued much higher than the current cash balance + physical assets, we It has to wait for some real, tangible progress to sustain its valuation above $2 billion."

 

“Given this, the idea that IonQ should be shorted isn’t all that unreasonable either. However, as suggested earlier, if you think of IonQ as an open market-funded R&D company rather than a traditional focus on sales and profitability Company, many of the reasons for Scorpion to short IonQ are basically not a problem.”

 

“My take on IonQ is that the technical talent they are able to attract, and the technical leadership provided by the company’s founders, is enough to allow them to solve really hard problems in a timely manner (draining their $600 million IPO in the process) , to launch a product that might solve a real-world problem.”

 

 “I don’t recall seeing Scorpion Capital put forward a price target for IonQ. But based on the incendiary language of the existing report itself, it seems the author thinks IonQ is valued at 0; for now, this is wrong, but in 2027 What about 2030? I would like to see more faith in the founders of IonQ and less hype from the CEO/PR team so that I can believe that IonQ will survive into the next decade.”

 

Maybe what IonQ should do now is let us see a 32-qubit QPU.

 

Reference link:

https://quantumobserver.substack.com/p/the-scorpion-and-the-qubit?s=r