Space Stocks Surge as SpaceX IPO Frenzy Builds

Space stocks are extremely hot right now, particularly amid anticipation surrounding SpaceX’s IPO, the biggest public offering ever. The Wall Street Journal recently reported that the space company is aiming to go public on June 12 and raise as much as $80 billion, targeting a valuation of about $2 trillion.

Data Centers in Space

Elon Musk’s ambition to build data centers in space is helping drive the SpaceX’s IPO plans. Blue Origin, founded by Amazon’s (AMZN) Jeff Bezos, is also in the race. Bezos told CNBC yesterday that building data centers in space is highly realistic, though the timeline could be longer than expected.

Alphabet (GOOGL) is also working on a space-based data center project, codenamed Suncatcher, with test launches expected in 2027. Google is reportedly in talks with SpaceX for a rocket launch deal, according to the WSJ.

The Investment Case for Space Stocks

The economics of space have fundamentally changed. Launch costs have fallen by roughly 90% over the past two decades, driven largely by reusable rocket technology pioneered by SpaceX.

According to McKinsey, the global space economy is expected to reach $1.8 trillion by 2034, up from $613 billion in 2024. That growth is expected to be driven by satellite broadband, Earth observation and geospatial intelligence, positioning services, and in-orbit services, among other areas.

There are also strong geopolitical tailwinds, as major governments allocate more spending toward space resilience given that space infrastructure is increasingly viewed as critical national and commercial infrastructure.

Many space companies contributed to NASA’s awe-inspiring Artemis II mission and have seen their stocks soar amid growing interest in the emerging lunar economy.

At the same time, investors should keep several significant risks in mind, including execution risk, long development cycles, and the capital-intensive nature of the industry. In many cases, valuations also appear frothy.

Space ETFs

A number of space-themed ETFs have launched recently as providers try to capitalize on growing investor interest in the sector. Planet Labs PBC (PL), Rocket Lab Corporation (RKLB), and EchoStar (SATS) are among the top holdings in several of these funds.

The Procure Space ETF (UFO), the first pure-play space ETF, has gained more than 145% over the past year. The provider recently announced an index rule change that would allow mega-cap IPOs like SpaceX to be included within a day of their debut. (Read: Space Stocks Are Taking Off. Here's Why)

The Tema Space Innovators ETF (NASA) provides exposure to SpaceX through a special purpose vehicle (SPV), which may be subject to a lockup period of at least six months.The fund has surpassed $1 billion in assets and gained more than 52% in just 37 trading days. However, the SpaceX position has fallen to 4.5% of the portfolio from roughly 11% earlier, as assets have ballooned.

Bottom Line

Investors should remember that newly public companies are often far more volatile than established stocks. Recent index rule changes could also push SpaceX into broad-market ETFs such as the Invesco QQQ (QQQ) sooner than many expect.

Given the opacity, complexity, and potentially high fees associated with SPVs, I believe investors are better off avoiding ETFs that gain exposure through those vehicles. Overall, most investors will likely be better served waiting for the hype to cool before deciding how much exposure they truly want to the theme.

To learn more about UFO, NASA and other space ETFs, please watch the short video above.

Boost Your Portfolio with Our Top ETF Insights

Zacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week.

Don’t miss out on this valuable resource. It’s free!

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

Source Zacks-com