SpaceX is special.
It’s the most well-known and high-profile company in the space industry right now. Everyone knows about SpaceX.
The problem?
It doesn’t trade on public markets. Individual investors cannot buy shares.
That means retail investors must look for the next best thing.
Here, we like Rocket Lab (NASDAQ: RKLB). Rocket Lab stock could be one of the best ways to play the space industry for investors that can’t buy SpaceX.
But before we get into that, let’s discuss why space is about to enter its hypergrowth phase.
- The Space Industry Is Entering Hypergrowth
- Rocket Lab Is More Than Just A Rocket Company
- Electron Already Has Track Record
- Neutron Will Open New Markets
- Governments Want Multiple Suppliers
- The Government Pivot Could Drive Long-Term Growth
- The Space Economy Could Be The Next AI
- SpaceStock Could Benefit From A SpaceX IPO
- Why Rocket Lab Is So Interesting
- Peter Beck Knows Rockets
- Final Thoughts
The Space Industry Is Entering Hypergrowth
The space industry was stagnant for decades. Rocket launches were expensive, slow, and largely limited to government applications.
Private companies either did not have the talent or capital needed to break into the industry.
Until recently.
Reusable rockets changed everything.
As launch costs decrease, the space economy is beginning to expand.
Companies like SpaceX opened the doors for others to innovate. The space industry now includes a wide variety of different sectors.
And the space economy could grow to exceed US$1 trillion in value worldwide over the next two decades.
Here are just some of the industries that fall under the “space economy.”
- Satellite internet companies
- Earth monitoring & observation
- Defense & military
- Deep space & lunar missions
- Space manufacturing
- Space based climate initiatives
- GPS & navigation
- Space-based communications networks
- Commercial space stations
The space economy has already begun to expand, and we are still in the very early innings.
It reminds me of the early internet days once again.
Everyone knew the internet was going to be important, but very few investors realized just how massive the ecosystem would become. It wasn’t just companies like Facebook and Amazon that became huge winners. Infrastructure providers became massive winners too.
Rocket Lab Is More Than Just A Rocket Company
When thinking about space stocks, investors often mistake Rocket Lab for just a mini SpaceX.
Rocket Lab is so much more than that today.
Beyond just launching payloads into space, Rocket Lab provides end-to-end space systems.
That includes:
- Rocket launches
- Satellite manufacturing
- Spacecraft components
- Space software
- Defense contracts
- Space systems integration
- Deep space mission design
If you only care about rockets launches, then okay. But if you realize the long-term potential of the entire space economy, Rocket Lab is building a massive ecosystem around it.
Satellites have already proven their value to the world. And contrary to popular belief, there is a significant runway for growth in the space industry.
Electron Already Has Track Record
Unlike many space startups, Rocket Lab is already operational.
Its Electron rocket has already proven successful and reliable.
That is incredibly important.
SpaceX wouldn’t be where it is today if it hadn’t already provenworthy of recurring revenue from NASA and commercial contracts.
Launching rockets is hard. Many startups can make promises and draw looks things on paper.
Electron actually launches satellites into orbit on a routine basis.
Just imagine how hard it is to build a functioning rocket.
Yet Rocket Lab has already shown:
- It can launch rockets
- It can build repeat customers
- Government’s trust the company
- They can execute on engineering designs
- They can operate consistently
In space, execution matters. There is a long list of space startups that never made it.
Rocket Lab has proven itself.
Neutron Will Open New Markets
When Electron was initially launched, Rocket Lab was focused on small payloads.
But with the development of Neutron, Rocket Lab will be able to access a much larger addressable market.
Neutron is Rocket Lab’s medium-lift launch vehicle that is currently in development. Neutron is designed to be reusable, similar to SpaceX’s Falcon 9 rockets.
Why does this matter?
Rocket Lab will be able to service a much larger market.
Payload size matters. Bigger payloads means governments, commercial contracts, and more regular launches.
Neutron will allow Rocket Lab to go head-to-head with SpaceX for much larger contracts.
While Electron may only service smaller payloads, we see Neutron as Rocket Lab’s ticket to gaining significant market share in the space launch industry.
Governments Want Multiple Suppliers
Did you know governments and defense contractors do not want to put all their eggs in one basket when it comes to space launches?
While Musk has done an excellent job building relationships with NASA, governments typically like to diversify their contracts.
That is where Rocket Lab comes in.
Rocket Lab already has contracts with the government. Not only does that establish credibility, but it allows Rocket Lab to build long-term relationships.
In many industries, this is how suppliers become entrenched with governments. It’s not always about who has the best technology. Although that is obviously important too.
Once contracts are in place and supplying to government agencies, switching costs become high.
The Government Pivot Could Drive Long-Term Growth
As the world pivots toward space, governments will have to begin allocating more funds into infrastructure.
I expect Rocket Lab to play a massive role in providing governments with that infrastructure.
From climate initiatives to national defense and more.
Rocket Lab Has Stronger Fundamentals Than Most Consumer-Driven SPAC Stocks
During the SPAC hype cycle, no shortage of “innovative” companies were able to go public.
Many of them are flash in the pan consumer companies with no real revenue.
Rocket Lab already has real revenue.
It actually launches satellites for a living.
Revenue matters.
Yes, investors should be willing to pay up for growth. But eventually, everyone runs out of investor money.
Companies with real fundamentals and trajectory separate from companies that aren’t actually executing.
Think about it.
Would you rather own a company with:
- No revenue
- Proven technological traction
- Government contracts
- Expandable ecosystem
- End-to-end space manufacturing & technology solutions
- Real optionality
Or would you prefer to own a story stock going nowhere?
The Space Economy Could Be The Next AI
There is a ton of hype around AI right now.
And rightfully so. AI has the potential to disrupt every industry on the planet.
But the space industry is another innovation wave that will quietly compound over the next few decades. If you think about how much of the world already relies on satellites, it’s hard to see demand decrease.
Here are just a few ways we currently use satellites.
- GPS
- Internet infrastructure
- Weather monitoring
- Military defense systems
- Banking
- Air travel
- Shipping logistics
Space impacts all of our lives whether we realize it or not. And as the world becomes more interconnected with technology, demand will continue to rise for space companies.
Rocket Lab is already a leader in satellite launches.
SpaceStock Could Benefit From A SpaceX IPO
If SpaceX ever goes public, Rocket Lab could benefit.
Here’s why.
SpaceX already did the heavy lifting of getting institutions interested in space.
Think about any industry with a category defining company.
If that company achieves massive success, it tends to shine a spotlight on the entire industry.
Investors eventually realize there are other companies trying to solve similar problems. Other companies that could benefit from a ton of future growth if they execute.
When more investors become exposed to SpaceX, it will lead other investors to search for the “next SpaceX.”
The amount of media attention SpaceX gets would help legitimize space as a sector that all institutional investors should pay attention to.
While the company would not go public for years (potentially over a decade), every SpaceX update will have ROCKET LAB printed in the headlines.
Why Rocket Lab Is So Interesting
When it comes to risk/reward, Rocket Lab is pretty unique.
The stock trades at ~$23 and has a market cap of around $5 billion. The company hasn’t gone public very long, yet.
I believe Rocket Lab has a real chance to capture meaningful market share in the space industry.
It has government contracts. A proven track record with launches. Leadership runs the company like it’s building a Boeing instead of a hype machine.
The space industry could become HUGE. If Rocket Lab can secure even 5% of the addressable market, the company would be worth well over $100B.
Not enough?
How about Elon Musk said Rocket Lab is building the best rockets ever made.
Peter Beck Knows Rockets
In the space industry, execution is everything.
Rocket Lab’s founder and CEO Peter Beck knows rockets.
While Musk gets most of the media’s attention, Beck has quietly built a badass company in Rocket Lab.
Building rockets is hard. It’s not like you or I can wake up tomorrow and start our own rocket company.
Beck actually did it. Born in New Zealand, he has since built Rocket Lab into a world-renowned aerospace company.
He runs things differently than Elon Musk.
The company focuses on under-promising and over-delivering. That is a culture you want to see in aerospace companies.
Think about how many rocket companies have been started only to never actually launch anything? Upon further inspection, that’s most of them.
The space industry is littered with failed rocket startups.
Rocket Lab isn’t going to fail.
Final Thoughts
While Rocket Lab may not be a future SpaceX, it could end up being one of the most important infrastructure providers in the space industry.
After witnessing how much the space industry has grown over the last decade, it’s hard to imagine demand decreasing. Every industry needs suppliers, and Rocket Lab is going to benefit from space becoming one of the largest industries in the world.
Plus, there is absolutely nothing wrong with owning space infrastructure ahead of time.
A Lot Can Go Wrong
Although I like the long-term growth prospects for Rocket Lab, plenty can go wrong in the short-term.
We are still in a volatile risk-off market environment where growth stocks are getting punished.
- Execution Risks: Despite having a successful track record, rocket companies are still incredibly high-risk. One failed launch can mean a drastic reduction in value.
- Competitive Risks: SpaceX isn’t going away. Though government’s like diversification, SpaceX has already established itself with many government contracts around the world.
- Government Risks: Speaking of government, it’s rare we see the government increase spending during periods of uncertainty.
Again, there are tons of risks to consider with any growth stock.
But if we look at the long-term opportunity here and truly believe space is going to be one of the largest industries in the world. Rocket Lab is a company I can get behind owning for the long-term.
Disclosure: I’m/we are long RKLB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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