Space is a new and exciting industry with potential both now and in the future. According to a report by Morgan Stanley, the space industry could grow from $400 billion to more than $1 trillion by 2040, which doesn't even factor in new markets like space tourism. How do investors capture this upside? Several companies are beginning to build their contributions to this new market.
Investors need to understand that such a young industry carries many risks, but these five companies can generate significant returns if things work out well over the long term.
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1. Virgin Galactic
Sometimes it's hard to believe, but the day is coming when people can tour space. Virgin Galactic Holdings (SPCE 2.90%) is helping build the space tourism industry. Its spacecraft is designed for suborbital flights, leaving the Earth's atmosphere but not entering orbit. These flights produce a short duration of weightlessness before coming back down.
The company sells tickets for future flights at $454,000 per seat but has more test flights to complete before beginning customer flights. The company's most recent test was a successful flight in July 2021, when founder Richard Branson joined the ship's crew. The long-term potential for Virgin Galactic is a fleet expansion and mastery of the technology that can make the price to fly affordable for more customers, bringing space tourism into the mainstream. The stock's small $2.6 billion market cap leaves a lot of room for upside if Virgin Galactic is successful.
2. Shift4 Payments
If there is a space industry, how will we process the payments that flow back and forth? Payment processing company Shift4 Payments (FOUR -0.93%) could help answer that question. Hotels, entertainment businesses, and restaurants across the country use Shift4's platform.
In its report, Morgan Stanley believes that satellite broadband, satellite-delivered internet, could contribute between 50%-70% of the space industry's projected growth. Elon Musk's SpaceX has invested heavily to build Starlink, its upcoming broadband business. Shift4 has partnered with SpaceX to support it with its payment services. Shift4's management estimates this addressable market as being worth between $100 billion and $500 billion globally. Shift4's satellite broadband exposure andgrowing payments business could fuel growth over the years ahead.
3. Trimble
Space is a complex industry, and companies like the industrial technology business Trimble (TRMB -1.08%) can advance the development of space with its software solutions that help its customers use data information to run their operations. For example, it can use satellite data to help customers use their physical assets most effectively. Its primary businesses concentrate on applications like buildings and infrastructure, geospatial data, commodities and utilities, and transportation.
For instance, the company's technology helps farmers maximize their crop harvest. Trimble's ability to simplify parts of these complex industries and applications could make it a natural fit for the space industry as it grows over time. The immaturity of space could make Trimble a good stock for broad exposure, and it happens to be the top holding in ARK's space-focused ARK Space Exploration & Innovation ETF.
4. Lockheed Martin
Aerospace and defense company Lockheed Martin (LMT 0.01%) is a natural fit in the space industry, thanks to its vast experience in rockets and propulsion gained from making various weapons systems and vehicles for the U.S. military. It has a space business segment -- including satellites, space transportation, and defense systems -- that accounted for almost a fifth of total revenue in 2020.
President Donald Trump created the Space Force in late 2019, a new division of the U.S. military. Suppose space eventually becomes a new arena for geopolitical tension. In that case, Lockheed Martin's existing relationships and experience in the space industry could help its space segment grow as a part of the company's overall business.
5. BlackSky Technology
Satellites are gaining more use as technology advances, helping us transmit information between space and Earth at faster speeds. BlackSky Technology (BKSY -0.84%) is a geospatial-data company that's building a network of satellites to perform rapid surveillance of the planet's landscape through its software-as-a-service platform. It can generate and transmit imagery in approximately 90 minutes; its customers include U.S. intelligence agencies and commercial customers in commodities and insurance.
It's a young company competing against other satellite companies in the market. Still, BlackSky's $2.5 billion business pipeline gives the company predictable revenue over the next few years. Investors will want to keep an eye on execution to see that backlogged business converts to billed revenue, and that BlackSky successfully expands its satellite fleet over time. Its market cap is just $370 million, so the upside is sizable if things work out.
