Investors can boldly go where no traders have gone before.
If every asset class on Earth looks expensive, as some analysts claim, then what about allocating your money in the cosmos? According to Morgan Stanley, space-based technologies and companies are poised to be one of the great growth industries of the coming decades. And while there are risks associated with it, and few publicly traded names that offer pure exposure to the theme, it is an area that investors can consider as a growth play.
The global space industry is currently valued at about $350 billion, according to data from the Satellite Industry Association cited by Morgan Stanley researchers. The investment bank estimated that the industry could grow to $1.1 trillion by 2040, although it warned that due to “significant execution risk,” the range of potential outcomes was extremely wide. In the low end of its range, it sees the industry growing to $600 billion over the next 20 or so years, while the bull case suggested an industry value of $1.75 trillion.
While science fiction and pop culture may have investors envisioning industries for personal rocket transportation or real-estate companies focused on lunar vacation homes, the initial opportunities will be more prosaic. In the short to medium-term, Morgan Stanley wrote, “most of the value of the industry is linked to internet bandwidth.” Satellite broadband technology is responsible for about half of the global space economy, and should continue to be a major factor going forward, comprising roughly 70% of the investment banks’ optimistic scenario.
“We estimate a $400 billion+ incremental revenue opportunity from providing internet access to under- or unserved parts of the world, and a ~$725 billion revenue opportunity for internet companies focused on social media, search/online advertising, and, in particular, e-commerce, if global internet penetration reaches 100%,” it wrote.
Over the longer term, however, advances in technology and falling costs will mean new avenues for revenue, including applications for “national security, research, deep space exploration, high-speed travel… even mining asteroids.”
National security could be a particularly big growth area; Morgan Stanley noted that U.S. military expenditures exceed $600 billion a year, compared with NASA’s annual budget of about $20 billion. “There appears to be substantial room to increase the investment in space,” it wrote, though it added that while the topic would be discussed more in the future, “our view is balanced by a recognition of real-world budgetary constraints, and other priorities.”
The bank said investors looking at publicly traded securities “may find it difficult to invest in space exploration, due to limited options and catalysts, fragmented coverage, and / or significant risk and uncertainty.” There’s more action in privately held names, it added, pointing to companies founded by Jeff Bezos, the chief executive officer of Amazon.com AMZN, +0.87% and Tesla Inc.’s TSLA, +0.82% Elon Musk.
Bezos is also the founder of Blue Origin, an aerospace manufacturer and spaceflight technology company, while Musk has SpaceX, which has launched and landed numerous rockets and has the beyond-moonshot goal of colonizing Mars. Morgan Stanley suggested SpaceX could lead investments in the industry, saying it believed public investors would start to pay more attention to the space-related companies if SpaceX decided to go public.
Read more: New space race to Mars pits NASA vs. SpaceX
Despite that, there are a number of publicly traded companies that are connected to the broad theme of space technology and business. Morgan Stanley listed 20 that it said are “best exposed to the growth of the Global Space Economy.”
The list includes some obvious candidates, including aerospace giant Boeing Co. BA, +0.45% Northrop Grumman Corp. NOC, +1.01% United Technologies UTX, +0.73% and Lockheed Martin Corp. LMT, +0.77% which recently invested $300 million refreshing its array of satellites.
Facebook Inc. FB, +0.39% and Alphabet Inc. GOOGL, +0.43% —the parent of Google—were also mentioned, as part of the broader internet play. “Facebook’s revenue growth is driven by increases in users (now at 1.3 billion daily active users), engagement (now at ~55 minutes / user / day), and sophisticated data analytics / targeting to serve high quality content and ads to its users,” Morgan Stanley wrote. “As such, the ~2 billion current global internet users not on Facebook and 3 billion+ people not online are potential material drivers of long term growth.”
Similar reasons were given for Alphabet’s presence on the list.