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Space: Investing in the Final Frontier

Could a new era of space exploration mean satellite broadband internet, rocket-fueled package delivery and manned space travel?

It’s been nearly half a century since humans left footprints on the moon and during that time, human space exploration has largely centered on manned low-Earth orbit missions and unmanned scientific exploration. But now, falling launch costs, improvements in technology and high levels of private funding are making space exploration another industry ripe for disruption.

In the last fifteen years, the business of space exploration has changed substantially, with private corporations joining governments in creating and launching rockets and satellites. The recent advent of reusable rockets is drastically cutting the cost of sending satellites into space, and the potential for mass production of satellites could slash those costs further.

The revenue generated by the global space industry may increase to $1.1 trillion or more by 2040.

In fact, as data demand surges—a trend driven particularly by autonomous vehicles—Morgan Stanley estimates that the per-megabyte cost of wireless data will be less than 1% of today's levels.

While reusable rockets will help drive those costs down, so too will the mass-production of satellites and the maturation of satellite technology. Currently, the cost to launch a satellite has declined to about $60 million from $200 million via the use of reusable rockets, with the potential to fall to as low as $5 million. And satellite mass production could decrease that cost from $500 million per satellite to $500,000.

The investment implications for a more accessible, less expensive reach into outer space could be plentiful and significant, with potential opportunities in fields such as satellite broadband, high-speed product delivery and perhaps even human space travel. While the most recent space exploration efforts have been driven by handful of private companies, what is now a small step for private companies may someday be a giant leap forward for investors.

In a new report, “Investment Implications of the Final Frontier," Morgan Stanley Research examines these fast-moving developments and paints a coming picture of opportunities in space.

2018: A Space Odyssey

New eras of modernization are often sparked by a single transformative technology shift, followed by a flurry of complimentary innovations. In 1854, when Elisha Otis demonstrated the safety elevator, the public likely struggled to comprehend the impact it would have on architecture and city design. But roughly 20 years later, every multi-story building in New York, Boston, and Chicago was constructed around a central elevator shaft.

Today, development of reusable rockets may provide a similar turning point. “We think of reusable rockets as an elevator to low Earth orbit,” says Morgan Stanley Equity Analyst Adam Jonas. “Just as further innovation in elevator construction was required before today's skyscrapers could dot the skyline, so too will opportunities in space mature because of access and falling launch costs.”

Privately held space exploration firm SpaceX, led by Elon Musk, has been developing these technologies. SpaceX's ambitions include manned landings on the moon and Mars, but it's the reusable rocketry and the satellites that could be more frequently and cheaply launched into space that offer immediate possibilities for investors.

The Global Space Economy

Space as an investment theme is likely to impact a number of industries. Morgan Stanley estimates that the revenue generated by the global space industry will increase to $1.1 trillion or more in 2040, up from $350 billion in 2016. While the Aerospace & Defense, IT Hardware and Telecom sectors will provide investors a way into the emerging space theme, perhaps the most significant short- and medium-term opportunities will come from satellite broadband Internet access.

 

Global Satellite Industry Revenue (2016 vs 2040e)

Source: Satellite Industry Association, Morgan Stanley Research.
Source: Satellite Industry Association, Morgan Stanley Research, Thomson Reuters.

Morgan Stanley estimates that satellite broadband will represent 50% of the projected growth of the global space economy by 2040—and as much as 70% in the most bullish scenario. Launching satellites that offer broadband Internet service will help to drive down the cost of data, just as demand for that data explodes.

“The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude," says Jonas. “We believe the largest opportunity comes from providing Internet access to under- and unserved parts of the world, but there also is going to be increased demand for bandwidth from autonomous cars, the Internet of things, artificial intelligence, virtual reality, and video."

In fact, as data demand surges—a trend driven particularly by autonomous vehicles—Morgan Stanley estimates that the per-megabyte cost of wireless data will be less than 1% of today's levels.

While reusable rockets will help drive those costs down, so too will the mass-production of satellites and the maturation of satellite technology. Currently, the cost to launch a satellite has declined to about $60 million from $200 million via the use of reusable rockets, with the potential to fall to as low as $5 million. And satellite mass production could decrease that cost from $500 million per satellite to $500,000.

To Infinity and Beyond

Beyond the opportunities generated by satellite broadband Internet, the new frontiers in rocketry offer some tantalizing possibilities. Packages today delivered by airplane or truck could be delivered more quickly by rocket. Perhaps private space travel could become commercially available. Mining equipment could even be sent to asteroids to extract minerals—all possible, theoretically, with the recent breakthroughs in rocketry.

Jonas cautions that “history is littered with cautionary tales" of investing in satellite and other space-related companies, noting that stocks have been volatile and several such companies failed in the 1990s. However, this era may be different. This time, high levels of private funding and falling costs of space access may move the topic from skepticism to a dominant investor theme in the coming years.

For Morgan Stanley Research on opportunities in space, ask your Morgan Stanley representative or Financial Advisor for the full report, “Investment Implications of the Final Frontier," (Oct. 12, 2017). Plus, more Ideas.