From $350 billion a couple of years ago, to $1.1 trillion (or more) 20 years from now, investment bank Morgan Stanley believes that the space economy could more than triple in size by 2040. But what exactly is this space economy -- and how do you invest in it?

Various pundits will answer this question in various ways, but here's how I prefer to look at it. All of the space economy is divided into three parts: old space companies, new space companies, and what I'd call space-adjacent companies.

Let's look at them one at a time.

Rocket launching to space

Image source: Getty Images.

Old space

What's the first thing you think of when you think about space exploration? Rocket ships, of course! And for the longest time, American rocket ships were built by just a handful of companies.

Boeing (BA -2.87%) built the Delta IV heavy-lift rocket, for example, and Lockheed Martin (LMT -0.20%) the Atlas V. (Now both rockets come from the companies' joint venture United Launch Alliance, or ULA.) Northrop Grumman (NOC -0.02%) contributed Pegasus, Minotaur, and Antares rockets to the mix. And unless they were bought from Russia or built in-house, the engines that powered these rockets generally came from Aerojet Rocketdyne (AJRD).

All four of these companies are still doing decent business building rockets and selling them to the government for occasional rocket launches. They're also all involved in the development of a new mega-rocket for NASA, the Space Launch System, or SLS.

NASA hopes that SLS will be the rocket to take American astronauts beyond low Earth orbit, returning to the moon, exploring Mars, and even capturing asteroids for research and mining. But increasingly, SLS is attracting criticism for its high cost and long development time -- and it's even being accused of using obsolete technology. Indeed, SLS looks emblematic of "old space" companies' whole approach to space -- charging hundreds of millions of dollars to build a handful of expendable rockets, then throwing them away after just one launch.

Today, new space companies are rising up, offering new business models that promise to make space launch easier and cheaper -- and stealing market share from these old-guard space companies.

New space

SpaceX is the most obvious example of this new breed of space company. Its reusable Falcon 9, Falcon Heavy, and forthcoming Starship rocket have captured the imaginations of space fans and space investors alike with the promise of dramatically cutting the cost of space launch by building a rocket once and then launching, landing, and relaunching it many times. By not having to build an entirely new rocket for each mission it launches, SpaceX has already cut the cost of spaceflight to as low as $50 million -- a seven-fold improvement over prices ULA has charged for some missions.

At the same time, small-launch companies such as Rocket Lab and Virgin Orbit are coming at space launch from a different perspective. Virgin Orbit -- the sister company to space tourism pioneer Virgin Galactic (SPCE -5.47%) -- plans to carry rockets high into the atmosphere aboard specially modified airplanes, then release them to blast small satellites the rest of the way into orbit. Because the carrier aircraft can be flown multiple times, this introduces a measure of reusability into the process (a la SpaceX), while the company's unique launch profile permits satellites to be launched essentially from any airport to any orbit a customer might desire.

Mind you, Virgin Orbit hasn't actually put any satellites in orbit yet. But Rocket Lab has. In fact, the company has already launched 11 times from its first spaceport in New Zealand. It's also opened up a second launch site in Virginia, and is currently building a third.

These aren't the only rocket companies working to remake space launch in their image, but so far, they're the most successful. Alongside companies like Planet Labs (a satellite imagery company) and OneWeb (a satellite internet company), they form the face of the new space economy -- and for investors brave enough to risk investing in IPOs, these are certainly companies to watch.

Space adjacent

A third facet of the space economy, and one that's all too easy to overlook, is companies that are what I'll call space adjacent -- businesses that operate primarily here on Earth, but that benefit (or in some cases suffer) from advances made outside Earth's atmosphere.

Who might this include? You can actually cast a pretty wide net. Some of the new space companies named above -- SpaceX and OneWeb in particular -- are building out satellite broadband constellations orbiting Earth. If successful, they could generate billions of dollars of profit selling internet access from space. Their success could also bring billions of new customers onto the internet globally, boosting the growth prospects of Alphabet for example, which will try to sell advertising to all these new customers.

On the flip side, investors will need to ask how cheap, universally accessible internet service will affect unwillingly space-adjacent enterprises such as Comcast, for example, which may find their internet service monopolies disrupted by competition from beyond the skies.

One company not yet mentioned, Iridium Communications (IRDM 1.88%), is bringing online a space-based air traffic monitoring service called Aireon, which has the potential to improve upon -- or even replace -- current systems of ground-based radar used for tracking aircraft and controlling air traffic. If successfully implemented, this technology could result in more efficient flight patterns that decrease fuel usage and improve the profitability of airlines.

Of course, this is just a sampling. You can imagine similar examples all around the globe, as satellite imagery is used to improve the efficiency of automotive traffic, cargo vessels at sea, or irrigation and fertilization of farmland, for example.

In short, there are ways to invest in the space economy directly. There are also ways to invest in it indirectly. And there's a very strong likelihood that in future years, your investments anywhere on Earth will be affected by the space economy, whether you like it or not.