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Why a new and more investable space race could add some stardust to portfolios
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Touchdown confirmed: at precisely 20:55 GMT on 18 February, Dr Swati Mohan, the project lead on Nasa’s latest Mars mission, duly announced the successful landing of the Perseverance rover to a cheering room of engineers at the administration’s Jet Propulsion Laboratory mission control in California.

The landing marked Nasa’s most ambitious and technologically advanced mission to the red planet ever. Perseverance has already sent some spectacular images of Mars back to Earth; it could yet find signs of extra-terrestrial life. These are heady days for Nasa that recall the glory years of space exploration in the 1960s and 1970s.

For investors looking for their next opportunity, it also signalled renewed excitement about the prospects of investing in an ever-expanding universe of stocks that have exposure to space travel. For starters, Nasa didn’t do this alone: a huge number of companies contributed to the project. Lockheed Martin (US:LMT) built the heat shield, Aerojet Rocketdyne (US:AJRD) built the rocket thrusters and Maxar Technologies (US:MAXR) delivered the robotic arm. And there are even greater opportunities beyond Nasa missions as the privately owned SpaceX and recently-listed Virgin Galactic (US:SPCE) take up the mantle.

Falling costs, technological advances and increasing interest from governments and the public alike are already conspiring to make space exploration the next multi-trillion-dollar opportunity for investors. On the one hand, you have Nasa, working closely with aerospace giants and embodying the old order of competing nations in the international space race. On the other, you have your eccentric billionaires in jumpsuits launching world-first space tourist vessels and trying to colonise Mars. Together, it’s an exciting space to be in.

 

SpaceX-factor

First disclaimer: the use of the word ‘next’ in the prior paragraph is not entirely fitting. Space investing is nothing new. Articles about space being the ‘final frontier’ for investors have been doing the rounds for many years (writers and editors hate to let an obvious pun pass them by).

Many readers will be familiar with the asteroid mining craze from a few years ago. The likes of Deep Space Industries and Planetary Resources promised much but fizzled: sending diggers into space to mine large chunks of ice and rock hurtling through space at thousands of miles per hour remains some way away. Their wings may have been clipped, but the latest crop of companies look to be more sustainable.

Space exploration has been on some investors’ radars for years, but in the past year we have seen the most exciting progress yet – this is a sector only just beginning to take off.

In January, Cathie Wood’s ARK Investment Management announced plans to launch a space exploration exchange traded fund (ETF). The ETF, which will be called ARKX, will invest at least 80 per cent in US and foreign stocks engaged in space exploration and innovation. It follows the launch of the Procure Space ETF (UFO) in 2019, which invests in a broad range of companies associated with space exploration.

Richard Branson’s Virgin Galactic programme has garnered much attention and investor enthusiasm, not least among Reddit traders. But nothing – and no one person – has quite captured our collective intergalactic imagination as much as SpaceX and its founder, Elon Musk.

Last year was a big one for the company. Not only did it launch 26 missions in 2020, chiefly as part of the Starlink satellite-internet project, but two of SpaceX's launches took astronauts to the International Space Station. These were the first crewed missions to take off from the US since Nasa grounded its shuttle fleet in 2011. In short, it was kind of a big deal because these are still very early days in the story of crewed space travel. It was also something of a watershed moment in terms of the private sector’s role with the US government in space travel.

And let’s not forget Donald Trump’s US Space Force, which has spawned a Netflix series and much mockery (not least for its logo bearing a striking resemblance to that of Starfleet in Star Trek). Nonetheless, it highlights how governments are increasingly worried about who controls space – and therefore are taking a greater interest than at any time since the peak of the Cold War in the 1960s. It has a $15bn budget this year and is already reported to be working with SpaceX and Blue Origin, the space company founded by Amazon boss Jeff Bezos back in 2000.

 

Ready for launch

One thing is certain: the size of the global space exploration market will rise considerably in the coming years. Morgan Stanley estimates revenues in the space industry will top $1 trillion (£700bn) by 2040.

While the focus lately has been on the success of the likes of SpaceX, among others, and the space exploration lead has been taken up by the private sector, there is growing public sector interest from Russia, China and the US in particular, with the establishment of the sixth branch of the US military in 2019 – the aforementioned Space Force.

Technology is facilitating leaps forward. For example, reusable rockets are seen as a major turning point for the sector. “We think of reusable rockets as an elevator to low Earth orbit,” says Morgan Stanley equity analyst Adam Jonas. “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.”

Put simply, advancing technology and lower rocket and satellite costs have completely upended what was once a monopoly only affordable to governments.

Wood provided more context in a recent interview with CNBC. “The costs associated with launching, with rockets themselves, with antenna – they’re all coming down dramatically, thanks to both the private and the public sector,” she said. “On the technology side we see SpaceX and Blue Origin pushing the envelope, so costs are coming down and the technology is finally ready.”

 

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With the opportunity afforded by new technology, space investing is growing. The $2.9bn invested in the fourth quarter of 2020 took the total inflows for the year to a record $8.9bn, according to research from venture capital (VC) firm Space Capital. In its latest quarterly report, it notes that there has now been some $178bn of equity investment into 1,343 companies in the space economy over the past 10 years.

“Despite wide expectations of [an] investor pullback in H1, VCs invested another $15.7bn into 252 space companies in 2020, of which $9.4bn went to US companies, representing 6 per cent of the $156bn in total venture dollars invested during the year,” the report notes, citing data from private equity data provider Pitchbook and the National Venture Capital Association.

Space Capital also notes the overlooked ambitions of Microsoft (US:MSFT) and Amazon (US:AMZN) in this arena. For example, last year Microsoft announced that its Azure cloud network will connect to SpaceX’s Starlink network. As Space Capital rather grandly puts it (though no doubt talking up its own book): “In the same way that every company today is a technology company, the companies of tomorrow will all be space companies.” Perhaps a leap too far, but clearly there is huge overlap between tech investing and space.

 

New frontiers, new countries

Space exploration is attracting huge private sector interest, but it’s also drawing governmental investment from a wider array of countries than we have seen in the past. Mars is proving the most intensely explored region of space and offers one of the greatest opportunities from an investment point of view.

On 18 February, after a journey of almost seven months, the Perseverance rover landed on Mars. It’s Nasa’s most ambitious effort on Mars since the Viking missions of the 1970s. China and the United Arab Emirates have also launched Mars missions. Musk, meanwhile, plans to colonise the planet.

At the same time, our moon still excites and exploration is again taking place. With the Artemis programme, Nasa plans to send people back to the planetary satellite by 2024. This will help it gain knowledge for pursuing the ultimate goal of crewed missions to Mars.

Then we have the age-old question about mining on the Moon, which unlike target asteroids has some degree of feasibility based on the technology currently being used. For starters, we know where the moon is going to be at any given point and it’s really rather close, in astronomical terms. In theory, there are hundreds of billions – if not trillions – of dollars of untapped resources on our satellite. Treaties prevent any nations from making sovereign claims to the Moon. But Nasa is keen to explore deeper and last May unveiled a legal framework – the Artemis Accords – to govern countries in space and on the moon.

Nasa Administrator Jim Bridenstine tweeted last September that the administration “is buying lunar soil from a commercial provider! It’s time to establish the regulatory certainty to extract and trade space resources”. In a later speech to the Secure World Foundation forum, he explained: “We do believe we can extract and utilise the resources of the moon, just as we can extract and utilise tuna from the ocean.”

The importance of this announcement, according to Casey Dreier, senior space policy adviser at The Planetary Society, is “not so much the financial incentive (which is tiny) but in establishing the legal precedent that private companies can collect and sell celestial materials (with the explicit blessing of NASA/U.S. gov)”.

Nasa’s view seems to be that there is nothing stopping miners claiming property rights and using the moon as a commercial venture. Just so long as it’s directing those precious metals and tax dollars to Uncle Sam, not Beijing or Moscow. It is using the Artemis Accords (to which the UK is a signatory) to frame this debate and derive economic advantage via private enterprise.

Importantly, China and Russia are not signatories. A space mining war is brewing. And where there’s competition, there are companies driving innovation.

 

How do I invest in space travel?

There are few pure-play space companies in which to invest, although there are plenty in orbit. SpaceX is one, but it remains private for now. It could be worth around $74bn after its next capital injection, according to some estimates, having been valued at $46bn in a fundraising round last year. However, Starlink – the company’s project to create a global broadband network using thousands of satellites – is expected to be spun off as a public entity in the not-too-distant future. “SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable,” Musk tweeted earlier this month. “Every new satellite constellation in history has gone bankrupt. We hope to be the first that does not.”

Musk says the company will IPO “once we can predict cash flow reasonably well”, which augurs well for a potential listing later this year or perhaps in 2022, although the timescale remains as elastic as space-time itself. SpaceX bosses reckon Starlink will cost around $10bn to build but could bring in as much as $30bn in revenues annually. Musk’s hopes that it doubles broadband speeds for users this year, with total global coverage by next year, should help.

Virgin Galactic is an obvious target and the leading stock in space tourism. Its shares have soared lately, partly due to optimism about its prospects and partly because it became the focus of the Reddit crowd. However, its shares came under pressure through February after the company delayed a space flight test and said it needs more time to carry out checks.

Last week the rescheduled test – already a rehash of an aborted attempt in December – was again delayed until May, sending the shares back to earth. The delays show that Virgin Galactic may be a little further away from commercial flights than some of the recent excitement in the stock would suggest. UBS said in a recent note to clients that “we’re mindful of valuation that appears full” despite upcoming test flights creating an appealing “catalyst chain”, and lowered its rating on Virgin Galactic from ‘buy’ to ‘neutral’ after the stock doubled this year.

Beyond this there are not many of what we might call pure-play space companies. The most salient include Aerojet Rocketdyne, which is still the US's leading maker of rocket engines, and satellite communications company Iridium (US:IRDM), which has about 66 operational satellites. Houston-based Axiom Space is becoming one of the fastest growing companies in the sector. It recently raised another $130m in funding, which president and chief executive Michael Suffredini said takes its valuation to ‘unicorn’ level, meaning it’s worth over $1bn.

 

From SPACs to ETFs and beyond…

A new pure-play space company is set to IPO in the second quarter of this year via a special purpose acquisition company (SPAC). Astra, a start-up rocket launcher company supported by Marc Benioff of Salesforce and ex-Google boss Eric Schmidt, will go public via the Holicity SPAC (US:HOL). It will be the first pure-play space company on Nasdaq – ticker ASTR – and aims to deliver incredibly low-cost rocket launches. Among its contracts is one with the US Space Force to launch a drone into space that can land anywhere on the planet within 45 minutes.

And more are on the way. Satellite imagery specialist BlackSky is going public via the Osprey Technology SPAC (US:SFTW). BlackSky, which will list on the New York Stock Exchange under the ticker BKSY, plans to raise about $450m through the deal.

Elsewhere, we can look to the Procure UFO ETF holdings for some ideas. In addition to Virgin Galactic, top stakes include high-speed satellite broadband provider Viasat (US:VSAT) and Maxar Technologies, a dedicated space tech company based in Colorado.

Of course, it’s more than just pure-play space companies that are attracting interest from space cowboys. Companies with exposure to space flight, such as Lockheed Martin and Boeing (US:BA), which has the lucrative Nasa Starliner contract. 

 

UFO ETF top 10 holdings
CompanyTIDM% Assets
Iridium Communications IRDM6.43%
Virgin Galactic SPCE6.15%
Gilat Satellite Networks GILT5.91%
Viasat VSAT5.65%
Maxar Technologies MAXR5.40%
ORBCOMM ORBC5.31%
Loral Space & Communications LORL5.20%
TrimbleTRMB4.72%
Eutelsat CommunicationsETL.PA4.69%
Sirius XMSIRI4.38%
Source: Refinitiv

 

Now to Cathie Wood. ARKX will invest across four sectors, which collectively point the way to further exploration of space investing on the stock market.

  • Orbital aerospace companies launch, make, service, or operate platforms in orbital space, which include things such as satellites and launch vehicles.
  • Suborbital aerospace companies are similar, but not as high in the sky, and might include drones, air taxis and electric aviation vehicles.
  • Enabling technologies companies are those that create the kit for aerospace operations, including artificial intelligence, robotics, 3D printing, materials and energy storage.
  • Aerospace beneficiary companies are defined as those that stand to benefit from general aerospace activities, a diverse group that includes agriculture, internet access, global positioning systems (GPS), construction and imaging.

Investing in space does not simply amount to rockets and satellites. Who knows how long it will be before Bayer (Ger:BAYN) is delivering seeds to grow on Mars or Anglo American (AAL) is drilling for diamonds on the moon?