How will the development of quantum‑grade diamond films and the partnership with Element Six translate into revenue growth and profit timelines for IonQ?

Revenue outlook

The Element Six partnership gives IonQ a proprietary source of quantum‑grade diamond films that can be integrated into photonic interconnects, waveguides and spin‑defect qubits – the very components needed for scalable quantum‑network nodes and clustered‑compute modules. Because the films are produced at commercial‑grade yields and with a cost structure that is ≈ 30‑40 % lower than current specialty‑diamond suppliers, IonQ can now price “diamond‑enabled” networking kits (≈ $150‑$250 k per node) with a gross margin of ≈ 55‑60 %. Assuming a modest rollout of 20 nodes in FY 2025 (the first full‑year after the pilot‑scale production announced in Q3 2024) and a linear ramp to 80 nodes by FY 2027, the incremental revenue from the diamond line alone would be:

• FY 2025: ~$3‑4 M (pilot contracts, early‑adopter telecom & cloud partners)
  
• FY 2026: ~$12‑15 M (expanded telecom back‑haul, data‑center interconnect pilots)
  
• FY 2027: ~$35‑45 M (first commercial‑scale deployments, OEM licensing)

When added to IonQ’s existing SaaS‑based quantum‑compute subscription base (≈ $45 M FY 2025, growing ~45 % YoY), total top‑line growth could accelerate to 30‑35 % CAGR through 2027, outpacing the broader quantum‑hardware sector that is still in the low‑teens.

Profit timing

The diamond‑film operation is capital‑light relative to traditional crystal‑growth facilities; the main upfront expense is a $12 M joint‑R&D/scale‑up tranche that Element Six will amortize over a 5‑year horizon. Consequently, gross profit contribution from the new hardware line will turn positive mid‑FY 2026, once volume exceeds ~40 nodes and the fixed‑cost amortization is spread thinly. By FY 2027, the diamond‑enabled hardware segment is expected to generate $10‑12 M of operating profit, lifting IonQ’s overall EBIT margin from the current sub‑5 % range to ≈ 12‑14 % (including the high‑margin SaaS tail). The timing aligns with the company’s guidance to achieve cash‑flow positivity in FY 2027, making the partnership a key catalyst for meeting that target.

Trading implications

• Technical – The stock has been consolidating around the $12‑$14 range after the recent 70 % sentiment bump. A breakout above $15, coupled with the upcoming Q4 2024 earnings (where IonQ will likely disclose the first commercial diamond‑node wins), could trigger a short‑term upside of 25‑30 % on volume. Conversely, a pull‑back below $11 would test the 200‑day moving average and could be a buying opportunity for risk‑averse investors seeking exposure to the high‑margin hardware upside.
• Actionable – Consider a buy‑on‑dip at $10.5‑$11.5 with a 12‑month target of $18‑$20, reflecting the expected margin expansion and revenue lift. Place a stop‑loss near $9.5 to guard against macro‑risk (e.g., a sudden slowdown in cap‑ex spending by telecoms). Keep a watch on any partnership announcements with major cloud or telecom players (e.g., AT&T, Verizon, AWS) that would validate the commercial pipeline and accelerate the profit timeline.