Key Points
SpaceX’s valuation sets a high bar, even after the pullback.
Rocket Lab’s smaller market cap could make upside easier to achieve.
Neutron and Space Systems give Rocket Lab multiple growth paths.
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Space Exploration Technologies (NASDAQ: SPCX) was the talk of the town this summer. The company reached a valuation north of $2 trillion just a few weeks after the biggest initial public offering (IPO) in history and traded as high as $225.64.
Fast forward to today. The company has already released its second-quarter FY 2026 report, and the stock is down about 40% from its 52-week high, with no sign of stopping.
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The reason comes down to SpaceX's financial reality: 24 years in operation, a leader in its sector, and yet it's not even consistently profitable. Granted, none of this is unusual in the space industry. But once a company reaches a $2 trillion valuation, fundamentals -- not hype -- will drive future returns.
That's why I'm looking elsewhere in the space industry -- and I've got my eye on a better candidate. Let me introduce you to Rocket Lab (NASDAQ: RKLB).
Rocket Lab is a better investment than SpaceX right now for three reasons.
Image source: Getty Images.
A smaller valuation means the math can work in your favor
First, there's a lot of room for growth.
Right now, a lot of rosy assumptions are baked into SpaceX's price, and that can severely hinder short- and long-term growth.
Think of it this way. Rocket Lab has a market cap of almost $50 billion. For the company to double in size, it "just" needs to create another $50 billion in added market value.
For SpaceX to double, it needs to add another $1.8 trillion. That difference is staggering and it changes the math for investors looking at company fundamentals. With those numbers, even minor stumbles can lead to major sell-offs.
Neutron could open a bigger launch opportunity
The next reason is Neutron, Rocket Lab's newest rocket.
Yes, it's still in development and has faced a couple of delays. But this medium-lift rocket is set to go up against SpaceX's Falcon 9, one of the most widely used launch vehicles in the world.
Now, I'm not saying Rocket Lab is going to replace SpaceX. That's not realistic. SpaceX has an enormous head start, a proven reusable rocket, and a rapid launch cadence.
But Rocket Lab doesn't need to replace SpaceX for Neutron to succeed.
If Neutron can capture even a portion of the launches currently going to Falcon 9, that could represent a significant new revenue stream for a company with a market cap that's a fraction of SpaceX's. And Rocket Lab is already booking Neutron missions, including a recent contract covering five Neutron launches.
Rocket Lab is more than a launch company now
And lastly, the business model.
Despite its name, Rocket Lab is no longer a dedicated launch company. In fact, most of its revenue now comes from its Space Systems segment, which sells satellite components, spacecraft, and mission software.
All in all, the Space Systems segment represents the company's infrastructure play, which could provide immense value once the space sector takes off. And again, Rocket Lab being in its earlier phase gives investors the chance to participate early in that future growth. Get in on the ground floor, so to speak.
Now, to be fair, SpaceX does have broader diversification and market leadership in Launch and with Starlink. It also has an interesting albeit embryonic artificial intelligence (AI) play with xAI. However, all of that ties directly to my first reason: With these prices and that valuation, investors will expect nothing less than perfection from SpaceX and all its initiatives.
Wall Street's ratings favor Rocket Lab, for now
Rocket Lab has an average "Strong Buy" rating from Wall Street, with zero "Sell" ratings among analysts.
On the other hand, SpaceX has a "Moderate Buy" rating, with three analysts bringing down the average with their "Strong Sell" ratings. However, consider that SpaceX has been trading post-IPO for less than two months, so things are likely to change as it moves along.
SpaceX is an exceptional company and an undisputed leader in the space industry. But at today's valuations, Rocket Lab offers the better risk-reward opportunity. Its infrastructure play gives it more avenues for long-term growth, while its smaller valuation leaves much more room for future returns.
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Rick Orford 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
