Should You Sell Rocket Lab Before the SpaceX IPO?

For several years I’ve heard many retail investors say “Rocket Lab is the best public proxy for SpaceX.”

Fair enough. SpaceX was and still is privately held. The company isn’t accessible to most investors. Rocket Lab, on the other hand, provided a way to gain exposure to the burgeoning commercial space economy. Anyone who believed the long-term thesis of reusable rockets, satellite economy, government defense contracts, space commercialization, etc. many times found themselves buying Rocket Lab because they simply ran out of other viable options to invest in.

Now I’m starting to hear people ask the flip side:.

What if SpaceX goes public?

Will people sell Rocket Lab (RKLB) to buy SpaceX? Could Rocket Lab’s stock price plummet as investors flee? Or could both companies exist side by side with plenty of growth available for both?

If you own Rocket Lab stock, this could be one of the most important questions for your long-term portfolio. You’ll want to know the answer.

The answer is more nuanced than many investors realize.

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Why Investors Bought Rocket Lab in the First Place

Rocket Lab also became attractive because it was “the closest thing to SpaceX” that traded on public markets.

On paper, the parallels are fairly straightforward:

• Both companies build rockets
• Both launch satellites
• Both vertically integrated
• Both want to own space infrastructure
• Both expanding into defense / gov contracts
• Both pursuing long-term platforms as opposed to one-time businesses.

Buying Rocket Lab was essentially betting on the growth of the space economy for many retail investors.

A smaller subset of investors thought Rocket Lab could one day be a miniature version of SpaceX that still made a ton of money though.

This thesis obviously persists today.

What investors are missing though is that Rocket Lab was never going to be JUST a “SpaceX substitute.” The company has long been developing into its own independent business with its own proprietary strengths, customers, and execution strategy.

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The Space Economy Is Much Bigger Than One Company

Another misconception investors have is “space is a winner takes all industry”.

It probably won’t be.

There’s simply too much money to be made in space for it to be a winner takes all market. The entire TAM for space is huge and still growing. We’re talking about;

• Satellite deployment
• Defense
• Earth Observation
• Space comms
• Space data infrastructure
• National security payloads
• Deep space
• Hypersonic
• Space manufacturing

You get the idea. Space-related industries could become a several trillion dollar economy in the coming decades.

Governments around the world are already ramping up budgets to build out sovereign space capabilities. Space is now largely considered a warfighting domain to be dominated by the countries that best develop a strategic advantage above Earth, not just a scientific one.

Multiple companies can win massive contracts.

In fact many governments and enterprise customers will want multiple providers and won’t want to be reliant on SpaceX. It’s called “not putting all your eggs in one basket”.

Think about it. If something happens to SpaceX’s satellite launch program, every paying customer will have no choice but to wait…potentially for years.

Diversification is key in aerospace and defense. That’s one reason why Rocket Lab continues to win contracts even with SpaceX having a massive scale advantage.

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Rocket Lab Has Quietly Become More Than a Rocket Company

Lots of retail investors still view Rocket Lab as “just” a small launcher that competes with SpaceX’s rockets.

This notion couldn’t be further from the truth these days.

Rocket Lab is quickly becoming a space systems company.

Its business now consists of:

• Components for satellites
• Satellites
• Solar arrays
• Guidance
• Mission software
• Defense
• Integrated satellite platforms
• Government space infrastructure

Why does this matter?

Well…

Launch services themselves will likely become a low margin commodity business in the future. Especially once SpaceX goes public.

As such, Rocket Lab’s management has been smart to expand into higher-margin portions of the space stack. Instead of solely relying on launches for top-line growth.

This could be especially important once we see an IPO from SpaceX.

After all, why would investors pay anything near fair value for Rocket Lab if we assume everyone is immediately comparing them to SpaceX.

At first glance, SpaceX “wins” hands down when focusing solely on launch. However, if investors begin to see Rocket Lab as a diversified space infrastructure company vs. just “smaller” rocket guy, then we could see a re-rating of sorts.

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The Real Risk: Capital Rotation

The largest short term threat to Rocket Lab in the event of a SpaceX IPO is probably not operational related.

Psychological and financial.

Investors who own Rocket Lab today may be the first to sell and rotate into SpaceX as soon as they can access it.

Temporary selling pressure could ensue.

Think of the headlines.

“You should ask why own Rocket Lab if you can own SpaceX?”
“Retail investors dump Rocket Lab for Elon Musk’ stead”
“The SpaceX IPO is reshaping the public space industry”

Just the narrative alone could cause volatility.

Large institutional investors may have to rebalance. Some ETF’s that track aerospace or innovation could even cut Rocket Lab to add SpaceX simply because it would instantly be one of the largest companies.

That is a very real possibility.

However this is where investors need to differentiate between short-term sentiment driven moves vs long term business fundamentals.

They are not always correlated.

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Rocket Lab and SpaceX Are Not Identical Businesses

Something else to consider that gets glazed over by some investors is that SpaceX and Rocket Lab are aiming for different scale operations.

SpaceX is doubling down on:

• Ultra High Payload Volume
• Starship
• Mars
• Starlink Broadband
• Ultra Heavy Pricing

Rocket Lab has doubled down on:

• Small/Medium Payload Launches
• Responsive Launch Solutions
• Mission Dedicated
• Flexibility for Governments/DOD
• Modular Satellite Constellations

Every satellite doesn’t need to launch on Falcon Heavy.

Customers also care about:

• Quick Turnarounds
• Mission Dedicated Launches
• Simplicity
• Flexibility
• Customer Focus

Rocket Lab may very well continue to fill a need long after SpaceX has steamrolled the heavy lift market.

Just like we see with airplane manufactures.

Boeing didn’t kill Embraer.

AWS didn’t kill small cloud hosting providers.

Nvidia doesn’t kill AMD.

There’s usually room for both.

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Peter Beck vs Elon Musk

One culture factor that people overlook…

Leadership Style.

Peter Beck doesn’t run his company the same way Elon Musk does.

Elon Musk = skyrocketing public expectations.

Launching SpaceX’ first unicorn. The company’s eventual IPO will be one of the largest ever.

Peter Beck = disciplined, engineering-led execution.

Has attracted investors that value:

• Operational Focus
• Realistic Communication
• Manufacturing Discipline
• Long-term Infrastructure Thinking
• Bare Knuckle Fighting if needed, but less hyped up storytelling.

Rocket Lab might actually attract more investors that prefer lower volatility and admire their focus on simply executing.

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Valuation Expectations Matter

Here’s something else investors should be careful about: valuation.

Say SpaceX ends up IPOing at a massively high valuation. Valuations that lofty set investor expectations that are hard to exceed.

SpaceX could IPO at hundreds of billions of dollars of market cap. Then investors may eventually come to realize that “massive future growth” is already priced into the stock.

Rocket Lab, on the other hand, could stay a smaller company with more “room to grow.” Not to mention, smaller up and coming companies have historically outperformed larger category leaders percentage wise simply due to the fact that growth rates can be maintained a lot easier from a smaller base.

That’s not to say Rocket Lab will definitely outperform.

But what I will say is that investors should never think “bigger company will automatically deliver better returns.” They’re not synonymous.

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Could Rocket Lab Actually Benefit From a SpaceX IPO?

But there’s a twist. A SpaceX IPO might actually benefit Rocket Lab as well.

Increased Awareness Of The Space Sector

First, an IPO would raise awareness of the space sector overall.

Many generalist investors don’t pay much attention to space infrastructure stocks as is.

An IPO from SpaceX would lead to:

• More analyst coverage
• More retail investors
• More institutional interest
• More media coverage
• Higher awareness of space economics

Rocket Lab would indirectly benefit from all of the above.

Highlight Rocket Lab’s Advantages

Second, contrasts between SpaceX and Rocket Lab could actually end up underscoring Rocket Lab’ advantages.

Investors might recognize that:

• Rocket Lab has vertical integration today
• Rocket Lab has launches today
• Rocket Lab is serving defense customers today
• Rocket Lab builds spacecraft systems today
• Rocket Lab will likely trade at a lower valuation multiple
• Rocket Lab could even seem “cheaper” if SpaceX accepts a high IPO valuation.

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What Long-Term Investors Should Focus On

If you’re a long-term Rocket Lab investor, I think the biggest questions right now probably aren’t:

• “Will SpaceX steal headlines?”
• “Will Rocket Lab dip after IPO day?”
• “Will retail traders rotate capital?”

Instead, I think they’re:

• Can Rocket Lab continue growing revenue?
• Can the company improve margins?
• Can Neutron succeed?
• Can Rocket Lab deepen defense relationships?
• Can space systems become a meaningful profit driver?
• Can management continue executing?

These are the things that I think will matter most over the next 10+ years.

News cycles will come and go, but long-term stock performance typically hinges on business execution.

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So, Should You Sell Rocket Lab Before the SpaceX IPO?

Entirely because of the IPO, I don’t think most people will decide that solely…

But a SpaceX IPO will without a doubt cause short term intensity and rotation out of Rocket Lab. That could happen.

Selling Rocket Lab just because SpaceX is going public though seems to ignore what Rocket Lab is becoming.

Rocket Lab is transitioning from “the stock people bought because they wanted SpaceX and couldn’t” to a legitimate space infrastructure & defense tech company with its own ecosystem, customers, and plan for growth.

We are likely at a point in the space economy where there is enough room for multiple winners.

SpaceX will likely be the behemoth. Doesn’t mean Rocket Lab is the loser by default.

The IPO from SpaceX may even validate the whole sector and help propel investors into space as a long-term theme.

Instead of deciding if you should own Rocket Lab or SpaceX, perhaps the smart play for some investors will be both.

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Final Thoughts

Investing in space is risky.

Rocket Lab is still a young company in a sector rife with technical, financial, and execution risk. Rocket failures, launch delays, shifts in the defense budget, and the need to raise capital can all affect future returns.

At the same time, the long-term opportunity is massive.

The next decade will define how humans view communications, defense, manufacturing, and infrastructure in space.

If that comes to pass, there will likely be multiple victors. But for investors, knowing what you own is crucial.

Rocket Lab is starting to develop its own narrative rather than existing as “the IPO until SpaceX decides to go public.” That may be important for investors than they realize.

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