When I was growing up, my grandfather told me that he only invests in things he actually understands. For him, it was primarily real estate.
While I never followed in his footsteps and know very little about real estate, I did follow his broader advice of investing in subject matters that I know at a deep level. My own portfolio is primarily concentrated in software and pharmaceutical companies.
Nevertheless, from time to time I will study companies outside of my usual focus areas. One company that landed on my radar over the last year is space stock Rocket Lab USA (NASDAQ: RKLB). Given my investment preferences, you might not be surprised to learn that I’ve remained fairly skeptical on Rocket Lab since I began studying the company.
In 2024, shares of Rocket Lab soared by 361% — absolutely trouncing the returns demonstrated by the S&P 500 and Nasdaq Composite. Generally speaking, I tend to caution investors against following stocks that witness outsize momentum. But in the case of Rocket Lab, I’m actually beginning to change my tune and forming more of a bull thesis around the company.
Below, I’ll break down what an investment in Rocket Lab could look like, and explore why 2025 could be a good time to initiate a position.
When it comes to investing in the space economy, my bet is you’d prefer a position in Elon Musk’s company, SpaceX. SpaceX is still a private company, and so investing in the business is not as accessible as buying stock in Rocket Lab.
With that said, even if SpaceX were a public a company, I would still prefer a position in Rocket Lab. The reason? Valuation.
Back in December, SpaceX completed a secondary sale in which the company itself and some syndicate of investors purchased shares from insiders. Per the transaction details, shares were bought for $185 per share — valuing SpaceX around $350 billion.
Here’s my simplistic view of investing in SpaceX: If I wanted to buy stock in the company at today’s prices, I’d be getting in at a $350 billion valuation. If I was hoping to double my money, SpaceX would need to increase in value to $700 billion. And if I wanted to 10x my investment, the company would need to be worth $3.5 trillion.
Considering the estimated total addressable market (TAM) for the space economy is expected to reach $1.8 trillion by the middle of next decade, it doesn’t really make sense for SpaceX to be valued at double that amount (at least anytime soon).
By contrast, Rocket Lab’s market cap currently hovers around $12.4 billion. Granted, this is a little rich based on Rocket Lab’s current sales figures and lack of profitability.
