Space: the race is on

Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation.

Executive summary: Space is a hot topic, the next frontier for both defence and data. Space is becoming an increasing military priority but crucially the digital infrastructure in the sky that is being created will be inherently dual use. The importance of space centres around big data. Satellites can help connect the unconnected and play a crucial role in mitigating world challenges. Falling launch costs mean enhanced access to data and increased use cases. As a result, the global space industry is already worth over $600bn and is set to roughly double in value over the next 20 years. However, the path forward for the industry is unlikely to be linear given its technological complexity and accident-prone nature. The geopolitics of space are highly contested too. Nonetheless, investors remain keen to gain exposure, with venture capital deals hitting a record level last year. With SpaceX still private, there are few major listed plays at present beyond Rocket Lab. Ultimately, the data providers of content and services may be the biggest beneficiaries. For now, the race is on.

Space exploration and the study of outer space have fascinated humans for centuries. We last wrote on this topic almost seven years ago, but since then advancements in our understanding have skyrocketed. We are on the cusp of a new golden age in space, enabled by AI-driven software, hardware, materials science and private sector entrepreneurs.

Crucially, space can help solve some of the most pressing problems facing the world. Accurate data allows for the efficient monitoring of the planet. Space technology offers the potential to connect every individual, progressing human development. Expect then, the commercialisation and digitalisation of space. At the same time, space is becoming increasingly congested, contested and competitive.

You may not be aware of it, but space has become indispensable for life on Earth, even if much of this is not visible to your average individual. Space is essential for terrestrial capabilities such as weather forecasting, remote sensing, navigation (GPS), long-distance communications and missile defence and detection. This last point is crucial. It is important to recognise that space is not just a place for peaceful exploration, but an arena for future combat. Control of space has become as important as dominance on land, sea and air. It has clear implications for the global geopolitical balance of power.

Have no doubt, space and defence are hot topics under the Trump administration. In 2016, when initially in power, Donald Trump became the first President since Ronald Reagan to increase NASA’s budget during his term. Globally, defence spending has risen for nine consecutive years and reached a new record in 2023 (the most recently available data) at $2.44tr, per the Stockholm International Peace Institute. Defence budgets are rising everywhere. Anecdotally, space now accounts for up to 10% of military spend, versus just a few percentage points at the start of the decade.

A much more optimistic world view would assert that space will play an increasingly crucial role in mitigating world challenges. At the least, almost all forms of space-tech are (or will become) dual-use, with applications in both defence/ government alongside a wide array of commercial use cases. The two main scenarios relate to disaster forecasting and mitigation through continuous monitoring, and improved prosperity. Direct-to-device data technologies can help accelerate access to education and drive broader economic activity.

The commonality in all the above is that the importance of space centres around big data. Think of space as digital infrastructure in the sky. In this world view, satellite constellations provide part of the solution for how to store, secure and transmit data. In a world where around 200 subsea cables are cut annually (per the United Nations), satellite connectivity can be key to providing communication, particularly in disaster-stricken areas. Furthermore, space can provide (part of) the solution to connect the unconnected. Some 2.6bn people lack access to the Internet and the opportunities it brings, according to the International Telecommunications Union.

Space is becoming increasingly relevant as satellite launch costs fall. These have fallen by a factor of 10 in the last 20 years (per McKinsey) reducing barriers to entry. Put simply, more launches mean more access to data and increased use cases. Innovations in reusability, manufacturing and competition have helped to lower launch costs from ~$55,000/kg in the Apollo era to less than $1000/kg currently, the equivalent of a 99%+ reduction.

Several factors have been responsible for reduced launch costs. Reusability has been the most significant. Each Falcon 9 (the current launch rocket used by SpaceX) booster saves as much as 70% of the launch cost, which equates to around $40m per flight, according to the company. Mass production and manufacturing efficiency have also helped. Rocket costs have come down from over $1bn when Saturn V launched in the 1960s to ~$70m for a Falcon launch, even when adjusted for inflation. This reduction has been a function of better materials, more streamlined production and increased automation. Lower propellant costs and better engine efficiency have also contributed.

Increased launch cadence and market competition have been additional important factors in driving the commercialisation of space. Prior to this decade, the launch industry was dominated by a few government-backed providers. More recently, the presence of more (private sector) players has helped bring about cost reductions. A Falcon 9 launched roughly every 4 days in 2024 (with SpaceX responsible for over 80% of all launches). This improved to a rate of every 2.5 days in the first quarter of 2025, according to the company. With economies of scale and new learnings from each flight that result in improvements to the next, costs continue to drop.

As a result, there has been a marked step-up in the numbers of objects launched into space. Just under 3,000 objects (which include satellites, probes, landers, crewed spacecrafts, space station flight elements and more) were launched into space in 2024. This compares to an average figure of less than 200 recorded annually between 1955 and 2015, according to the Space Industry Association.

Most of these satellites have been launched into low-earth orbit (LEO) and are used for commercial purposes. With a closer proximity to Earth, at ~2,000km distance, such satellite systems offer lower latency than traditional geostationary satellites. The latter, which orbit at higher altitudes of up to 30,000km, have been historically used for broadcasting and observation. LEO satellites in lower orbit provide fast internet speeds and improved communications, with their growing number accelerating more widespread coverage.

Although the US has the most space assets, more than 90 countries have some form of presence in space. Russia and China follow the US in terms of space dominance, with the UK and Japan next (per Our World in Data). The rate of change is perhaps fastest in China, with the country planning to launch a 12,000-strong constellation of satellites by the end of the decade. India has clear ambitions too and hopes to become the fourth country (after the US, Russia and China) to send astronauts into space. The UAE has recently created a space agency and countries as diverse as Peru, Saudi Arabia and Thailand are all investing in space initiatives.

The global space economy was worth at least $630bn in 2023, according to McKinsey. Almost every estimate suggests that this figure will comfortably surpass $1tr in the next 15-20 years. Morgan Stanley has identified 200 different space use-cases and projects a $1tr addressable market by 2040. The US Chamber of Commerce arrives at a $1.5tr figure over the same period. Meanwhile, McKinsey provides a range of scenarios for the space economy, valuing it at between $1.4tr and $2.3tr by 2035. Over this time horizon, the number of LEOs could increase tenfold to around 100,000.

Several factors could, of course, undermine this outlook. The space landscape has already changed rapidly so far this decade and will likely evolve quickly in the coming years. At the same time, in any nascent and technologically complex industry, things can and will go wrong. Not all launches are successful. Failed launches can have a significant reputational impact. In a worst-case scenario, the Federal Aviation Administration (or other comparable body) may rescind launch licences, slowing the development of the industry.

Another concern is that there remains a lack of consensus on how many satellites can be safely parked in LEO. This could become a geopolitical flashpoint. Add into this the risk of geopolitical miscalculations, particularly around the governance of space. The 1967 Outer Space Treaty devised by the US and Russia currently determines what can and cannot be done in space. It forbids any country from claiming sovereignty over any part of space. Not all countries (including China) have signed up to the Treaty, while the issue of ‘property rights’ in space is highly contentious.

The rapid rise in satellite numbers has raised further concerns about space debris and the potential for collisions in space. NASA estimates that over 8,000 metric tonnes of defunct satellites (a LEO satellite has an average asset life of 5-7 years), spent rocket stages and broken components reside in space. Fewer than 50% of objects present are actively used for communications, navigation, scientific missions or military surveillance. Efforts are underway to develop international frameworks and technologies to manage space traffic and the long-term sustainability of space activities.

None of these concerns, however, have stopped money flowing into the sector. Practically, governments are outsourcing much of the commercialisation of space to the private sector. The latter’s presence can help reduce bureaucracy and improve complex procurement processes, allowing governments to focus on other priorities. PWC estimates that ~$50bn of private capital has been invested across the global space sector since 2015. Another study (by Seraphim Space) highlights that global venture capital deals for space start-ups hit a new high of 595 in 2024, up 75% year-on-year.

Although these figures are impressive, investors should be mindful of the fact that the space industry is highly capital intensive and still in a state of flux. It is also important to consider that there is a complex value chain comprising rockets (to use space, first you must get there), tools (satellites and software) and end-uses (data and analytics). At the same time, there remains only a finite number of orbital positions and radio frequencies currently available in space.

SpaceX is the most visible play on the space industry. It was last valued at $350bn (in December 2024, per Crunchbase) and remains private. It is hard not to be impressed by its progress. The company was responsible for 5 out of every 6 launches in 2024 and owns ~60% of satellites in space. Per its website, SpaceX has conducted 500 completed missions, 462 total landings and 29 reflights.

With launch being the hardest capital barrier and very difficult to get right, it helps explain why there are few scaled launch and satellite plays beyond SpaceX. Rocket Lab, a US-listed business capitalised at ~$12bn is the leading public business in the space sector. It has launched more satellites into space than any entities other than SpaceX and the Chinese Government and surpassed 50 successful launches more quickly than SpaceX. Beyond launch capabilities, Rocket Lab also sells space systems and satellites. The business is set to remain loss-making for at least the next two years, per Bloomberg. AST Space Mobile (with a ~$12bn market value) may be one company that benefits from Rocket Lab’s launches. It is seeking to build the first space-based cellular broadband network designed to connect directly with standard, unmodified mobile phones.

Elsewhere, the listed industry comprises legacy providers of satellite services (SES, Eutelsat and Viasat) and start-ups (such as Intuitive Machines, Exail and Spire Global). Many private players are also visible including Blue Origin (backed by Jeff Bezos), Firefly and Voyager Technologies. The latter is planning to list in 2025. China also has its own private plays including Land Space Technology and Deep Blue Aerospace. From a broader perspective, consider who may benefit from the commercialisation of space. If space is about improved access to (big) data, then the main providers of it such as Amazon and Meta Platforms look well placed given the content and services they offer. For the industry as a whole, the direction of travel looks clear: to infinity and beyond.

24 June 2025

The above does not constitute investment advice and is the sole opinion of the author at the time of publication.Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

Alex Gunz, Fund Manager, Heptagon Capital