Rocket Lab's Latest Deal Puts It on a Collision Course With SpaceX
Key Points
Rocket Lab is acquiring a company called Iridium to directly compete with SpaceX's Starlink service.
Both companies want to vertically integrate their space economy businesses.
Rocket Lab looks slightly more appealing at these prices, but both stocks remain expensive.
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The share prices of space economy stocks may be sinking, but that does not make the sector any less important to the future of the global economy. Space Exploration Technologies (NASDAQ: SPCX) is the best-known of these space businesses due to its famous founder, Elon Musk, its recent record-breaking initial public offering, and its market cap of $1.75 trillion.
But this is not the only space economy company today vying to dominate the skies. Enter Rocket Lab (NASDAQ: RKLB). The rocket launch company just made a massive $8 billion acquisition to start directly competing with SpaceX's Starlink segment, setting off the starting gun for a collision course for the two ambitious businesses.
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Which is the better buy for your portfolio right now?
Vertically integrated space services
Rocket Lab has announced its intention to buy Iridium Communications for $8 billion. Iridium has a satellite constellation for global connectivity, as well as important rights to L-band spectrum, which can cost billions of dollars in today's market. With Rocket Lab's launch and satellite manufacturing capabilities, the combined business will be able to vertically integrate to grow a satellite internet business to serve both civilians and the United States military.
This will put Rocket Lab on a collision course with SpaceX, which is already the leader in satellite internet with Starlink. Starlink has 10 million subscribers, $11.4 billion in annual revenue, and is growing quickly. Iridium generated $872 million in revenue last year, more than Rocket Lab but well below what SpaceX is achieving in satellite internet services.
For Rocket Lab, everything hinges on its ability to catch up with Starlink's customer value proposition and get its new, larger rocket, called the Neutron, operational. With much heavier payloads, Neutron will be able to deliver more satellites -- both internally and for third-party customers -- to orbit much faster.
Image source: Getty Images.
Which stock is the better buy?
Both Rocket Lab and SpaceX trade at premium valuations, even after this post-SpaceX IPO dip for the entire space sector. Rocket Lab trades at a price-to-sales ratio (P/S) of 54, while SpaceX is still near 100 based on its 2025 figures.
To be fair, both businesses are growing quickly and are poised to lead the fast-growing space economy. However, the average S&P 500 stock trades at a P/S ratio of about 3.7, which is actually near a record high, meaning that these two space economy stocks trade at ultra-premiums.
If I had to choose, the lower P/S ratio and $40 billion market cap would put Rocket Lab ahead of SpaceX as a potential buy today. But for my individual portfolio, neither is close to making the cut.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.
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