To the Moon

With the industry headed for $1 trillion revenues, space investment is the next financial frontier

Much the same way that nearly every company today is at its core a technology company, every company of tomorrow will be a space company. So declares Chad Anderson, author of “The Space Economy” and founder of Space Capital. This makes space the next frontier in investing. By 2040, Morgan Stanley estimates, the space industry could be generating annual revenues of $1 trillion or more. Growth in the sector is set to shoot into the stratosphere, making space investment a solid play.

Satellite Launches

With so much of our terrestrial lives connected to the Internet of Things, there’s a great need for more satellite broadband internet. That means launching a lot more satellites into low-Earth orbit, which means a lot of business for companies such as SpaceX, Blue Origin, Rocket Lab, and Firefly Aerospace that specialize in that sort of thing.

Morgan Stanley’s projections have satellite broadband accounting for about half of the space industry’s growth in the next 15 years.

“The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude,” equity analyst Adam Jonas said. “We believe the largest opportunity comes from providing Internet access to under- and unserved parts of the world, but there also is going to be increased demand for bandwidth from autonomous cars, the Internet of Things, artificial intelligence, virtual reality, and video.”

Keeping track of things on Earth using technology like GPS, Earth observation, and advanced communications technologies will require more and more small satellite launches into LEO and creative ways of keeping them out of each other’s way.

Nearly $50 billion of private capital has been put into space investment since 2015, and the money will be pouring in over the next several years as technologies improve and more startups enter the industry.

Direct-to-device launches have proven successful this year, with SpaceX sending text messages via Starlink on T-Mobile’s cellular network. AST SpaceMobile began launching its 5G satellites this year, and Iridium plans to test its D2D service next year with a full rollout in 2026.

Launched on reusable rockets, these companies are building the infrastructure of the space industry.

“We think of reusable rockets as an elevator to low-Earth orbit (LEO),” Jonas said. “Just as further innovation in elevator construction was required before today’s skyscrapers could dot the skyline, so too will opportunities in space mature because of access and falling launch costs.”

Public Sector & Beyond LEO

Public sector spending in space is also accelerating at astronomical rates, with the U.S., China, Russia, Japan, and France committing vast sums to various aerospace and defense projects. A few years ago, the U.S. Space Force didn’t exist, and now it has a $30 billion budget for 2024. The Space Development Agency has big plans for communications and missile tracking satellites in LEO.

“I think the commitment of public spending represents a more attractive space for investors to explore,” Clayton Pfannenstiel, manager of the Fidelity Select Defense and Aerospace Portfolio, wrote. “The commercial market is seeing robust growth, but business models still need to prove out. The majority of public space companies do not generate free cash flow today, and existing defense companies are relatively more proven.”

This makes firms with existing defense contracts such as Northrop Grumman and Lockheed Martin safe bets for space investment.

Going beyond LEO, investors could shoot for the moon and even the stars. In February, Intuitive Machines’ IM-1 landed on the moon, paving the way for regular lunar cargo shipments. Firefly’s Blue Ghost is slated for a moon mission this year.

With NASA set to launch several lunar missions in the next few years, there will be a lot of activity on the moon in the near future, making regular cargo deliveries a normal thing.

“LEO ventures may increasingly serve as proof-of-concept precursors for higher-altitude ventures, including those at cislunar distances and beyond. With advances in enabling technologies for deep-space activities, such as launch services and in-space infrastructure, investors may look beyond LEO for the next frontier of investment opportunities. Several customer and investor signals point to cislunar space as a key growth opportunity in the next decade,” McKinsey analysts wrote.

Expanding Investment Horizons

“Our analysis shows that there are opportunities for investors of all stripes; the industry contains asset-light and technology-driven businesses, as well as infrastructure assets and supporting services businesses, all of which stand to benefit from the significant growth of the global space industry,” Matt Alabaster, a partner in PwC Strategy& UK wrote.

Eight of the 15 largest private equity firms and 13 of the largest 15 venture capital firms in the world have made space investment part of the portfolios, and the number of use cases for space technologies continues to grow as quickly as the technologies themselves.

Space investment from VC firms such as Founders Fund and Lux Capital has gone to early-stage startups focused on satellites and the rockets that launch them. The steady flow of defense spending makes stock in defense contractors a safe play. There are a number of ETFs, including SPDR S&P Aerospace & Defense ETF and Procure Space ETF offering investment in different aspects of the space industry.

Space tourism has already begun, and within a few years more options will come available for a wider proportion of the general public. Asteroid mining could in the end prove more lucrative than them all. Space investment is just getting started, and the opportunities could be limitless.