The space industry was once the exclusive domain of the government. Agencies like NASA in the US, Roscosmos in Russia and the China National Space Administration have long dominated space exploration and the industry surrounding it, making private sector investment or innovation all but impossible.
However, there has been a seismic shift over the last few years that has seen an emergence of increasingly influential private companies almost exclusively focused on (the) space and its commercialization. As a result, big investors are increasingly interested in space, just as they have been in other trends such as AI and crypto.
The rise in interest is tangible. Within the last week alone II has attended two separate investor focused events that have either been entirely focused on the sector or predominantly so. At Deutsche Bank’s Global Space Summit last week, attendance was up by almost one hundred percent compared to 2023 and of just over 400 attendees nearly half were investors; and at Baron Capital’s investor day earlier this month the level of excitement for SpaceX from the 5,000 mostly retail investors in attendance was palpable.
Starman and SpaceX
Ron Baron, founder and CEO of Baron Capital, who affectionately referred to founder and CEO Elon Musk as Spaceman despite not attending the event, outlined interest in SpaceX specifically. “When we started to invest in 2017 they had linear growth but now we have exponential growth, it is really accelerating right now,” he said. “People are clamoring to own stock.”
SpaceX is an undisputed leader in the private space sector, working closely with NASA and launching more rockets into orbit than all its competitors combined, including the Chinese state program. The Starlink satellite internet service also faces very little competition, and its user base is growing fast. Its latest flagship product, Starship, is the largest rocket ever built and has undergone six test flights, with the end goal reportedly to land on the moon.
“Starship is going to change the world, both on planet earth and off,” said Gwynne Shotwell, SpaceX COO, at the Baron event. “Elon [Musk] founded this company with the singular purpose and sole vision to build a transportation system necessary to put people on other planets. His vision is currently on Mars. But we’re all starting to look beyond Mars as well.”
The Starship product is revolutionary in that the booster part of the rocket is reusable, which has the potential to save tens of millions of dollars per launch. The technology could turn space travel into an industry much closer to the airline sector, some analysts say.
However, there are still hurdles preventing SpaceX from fully taking off. According to Shotwell, while the technology and physics are easy, permissions get in the way: “People are hard, and regulator people are the hardest. The U.S. regulatory regimes were built for 10 launches a year, not 100,130 or 160.”
However, with Musk taking a prominent role in President Elect Donald Trump’s administration, including an influential role as co-head of a yet-to-be-formed agency known as DOGE, or the Department of Government Efficiency, the SpaceX founder may be several moves ahead in the game of political chess. Musk could potentially be in a position to influence space regulations in a way that eases restrictions on the company.
“Everyone is starting to recognize in all industries that regulation really needs to be reinvented,” said Shotwell.
As these changes come and SpaceX is able to operate at the speed it desires away from regulatory shackles, it is likely that profitability and revenue will rise.
But others have suggested that the Trump administration is unlikely to change the environment significantly and that geopolitics was already shaping space exploration and defense pre-election. But clarity in how the area can be invested in will bring greater benefits.
But the success of one company doesn’t change the prospects of an entire industry. Payload Research says it still only made around $8.7 billion in revenue in 2023 and under $3 billion in profit, and other players are significantly smaller.
Rival companies looking to introduce commercial space travel such as Virgin Galactic and Blue Origin have faltered. Smaller space-focused companies such as Axiom Space, which is reimagining how a privately run space station may operate, remain in nascent stages.
Space exploration will spur development in existing and future industries, including satellite constellations, direct-to-device phone services, semiconductors, pharmaceuticals, tourism, research, data centers in orbit, mining, and, of course, defense —given the potential for space warfare. But these new areas for investment are high risk and expensive.
Tony Kim, a portfolio manager and sector head for the technology at BlackRock, is far less bullish about the prospects for space investing than most. Speaking at the Deutsche Bank event, he suggested that although there are two companies in the public market valued over $5 billion, the industry has had “twenty years of hell” and these are still not “the poster child of profitability.”
“Profitability is of course important, but what is more important is if you are a viable business with scale and you lead your particularly category,” said Kim.
The market is currently ascribing value to the potential of these businesses — but there is a radical disconnect between the current public valuation and profitability.
“If you look at these categories, there aren’t going to be hundreds of space companies that make it, there are only going to be a few,” said Kim, adding that “the commercial panacea has not yet been realized.”
The nature of the industry means there is a lot of uncertainty and unpredictability. Scaling these businesses and achieving dominance is difficult, and the very nature of space does not leave room for multiple actors in each category.
“At some point cash has to flow back to investors,” said Carl Sjölund, partner at EQT Partners’ infrastructure team. “People will not continue to put money into a black hole unless there is a path to profitability.”
BlackRock’s Kim added, “But if you win the prize, just look at SpaceX. There are a lot of problems and a lot of potential, but it goes to the old-fashioned business level, is the market even big enough to be relevant and are you relevant within it or is it a hobbyist industry?”
But the fact remains humans have been fascinated with space for millennia and the ability to see it firsthand will fuel even more desire. With growing competition from China the U.S. government is likely to bolster the sector with more investments and NASA will likely do an increasing amount of work with private companies. (For the first time, China has invested more money in space than the U.S. this year.)
Currently government contracts are a crucial part of financing, but as the market evolves observers expect this to change.
“The market is looking for space to prove itself, and – drawing from our growth fund – during the course of the last year we can now say that 60 percent of the companies are profitable or raised sufficient money to reach profitability,” said Mark Boggett, CEO and managing partner at Seraphim Space, an early stage space investment fund. “A year ago, that was 0 percent so the leading venture-backed growth stage companies are now as a group approaching profitability.”
This opens up prospects for M&A, he added, suggesting that there is a big list of potential acquirers with a specific defense focus for companies that are profitable and have proven the model.
“Activity has continued to be robust in the space market through the 2021, 22 downturn, [and] we’ve not seen one quarter over the last three years where there has been a step back,” Boggett added. “There was obviously less investment into the space market in 2022 and 2023 but there has been a marked recovery over the last six quarters.”
During the last quarter, $8.8 billion was invested in more than 500 companies, and “we expect that trend to continue,” he added.
Space has the potential to be a transformational industry with almost unimaginable potential, even though profitability remains difficult, regulations remain strict, and outcomes remain unpredictable. Updated regulations, coupled with investor confidence and spending, could potentially introduce an entirely new and well-functioning economy beyond anything seen on earth.
