After July pares some of their 1H26 gains, what is the outlook for space small caps?

The space sector received a powerful boost in the first half of the year from SpaceX’s debut. On June 12, the company completed the largest IPO in history, raising $75 billion at a valuation of around $1.8 trillion. Investors had begun betting on the sector even earlier: satellite and rocket stocks rallied sharply in late May in anticipation of the listing. The global space economy is expected to grow to $1.8 trillion by 2035 from $630 billion in 2023, almost twice as fast as global GDP, according to estimates from the World Economic Forum and McKinsey.

By July, however, the market had provided a reminder of just how speculative the space sector remains: by July 20, the leaders of the first-half rally had surrendered a significant portion of their gains. Goldman Sachs, whose basket of space stocks has risen more than 360% over two years, characterized the selloff as a sharp shakeout rather than evidence of structural problems.

There were several reasons for the correction. First, investors were taking profit after the sector’s leaders rallied sharply, with some stocks gaining 25-30% in just one week, making a pullback entirely predictable. Second, the SpaceX IPO stripped some of the scarcity premium from its publicly traded peers: investors can now buy stock in the industry leader directly. Finally, rising U.S. Treasury yields and a wave of additional stock offerings and convertible bond issues weighed on the sector by increasing the supply of securities. Most space companies remain unprofitable, making their valuations particularly vulnerable to such pressures.

Oninvest has assembled an index of 29 public small-cap space companies, 10 from the U.S., seven from Europe, four from Japan, four from South Korea, two from Canada, and one each from Israel and Hong Kong. The index covers virtually the entire space ecosystem, from satellite communications, Earth observation, and satellite manufacturing to rockets, spaceports, lunar programs, and in-orbit spacecraft servicing.

In the first half of the year, the equal-weight version of the index rose 50.2%, versus gains of 21.0% for the Russell 2000, 9.6% for the S&P 500, 31.3% for the Procure Space ETF, and 17.7% for the ARK Space Exploration ETF. The cap-weight version, meanwhile, gained 37.8%. The July correction was so severe, however, that as of July 20, the equal-weight index’s year-to-date gain had narrowed to 24.0%, while the cap-weight index was up only 8.8%.

Below we look at the top first-half performers from the Oninvest index that may be of particular interest to investors.

Satellogic (SATL)

Founded in Buenos Aires in 2010 but now headquartered in the U.S., Satellogic manufactures Earth observation satellites and sells imagery and analytics to government and commercial customers. Its stock led the Oninvest index in the first half of the year, gaining 205.9%.

In the first quarter, Satellogic’s revenue rose 80% year over year to $6.1 million. The company narrowed its adjusted EBITDA loss by 32%, generated positive operating cash flow for the first time, and ended the quarter with $121.9 million in cash.

Sales of satellites already operating in orbit could become a new growth driver. In April, Satellogic signed a $12 million contract with a defense customer to transfer a NewSat satellite, while Northland said in a note seen by Oninvest that it expects more such deals. Another potential catalyst is the Aleph Observer monitoring service: an undisclosed customer signed a one-year contract worth more than $18 million. Satellogic also plans to launch the first satellite in its Merlin constellation in October for daily imaging of Earth.

Satellogic supplies satellite imagery to the Palantir Foundry analytics platform, where it is used for data processing and model training. The five-year agreement, signed in February 2022, expires in 2027, and Northland considers its renewal one of the key drivers for the stock.

Satellogic does not have its own rockets and uses SpaceX to put its satellites into orbit. In 2022, the companies signed an agreement reserving launch capacity for 68 satellites, while this March, a Falcon 9 carried NewSat 53 and NewSat 54 into orbit as part of the Transporter-16 mission.

On July 23, Freedom Finance added Satellogic to its list of investment ideas, seeing 42.9% upside. ROTH Capital has a “buy” rating on Satellogic at a target price of $15 per share, having raised it from $10 per share in late May. Northland has an “outperform” rating at a target price of $11 per share, up from $9 per share. The main risk is the company’s dependence on large contracts: a delay to even one deal could significantly worsen its financial results and market expectations.

The stock has five ratings, all “buy,” according to MarketWatch data. The average target price is $11.80 per share, implying more than 100% upside from its Wednesday closing price.

Spire Global (SPIR)

U.S.-based Spire collects weather and radio-frequency data using its own constellation of small satellites and sells the data through subscriptions.

In the first quarter, revenue fell 34% year over year to $15.8 million because of the sale of the maritime business. Excluding that business, revenue rose 13% and exceeded the company’s guidance. In April, Spire raised $65.5 million through a private placement that the management said was undertaken in response to a surge in demand from institutional investors. The company has no debt. During the quarter, Spire launched 19 satellites across two missions. In total, it has launched more than 240 satellites across more than 40 campaigns.

The main potential growth drivers are NOAA’s $8 billion commercial weather-data procurement program, under which Spire is pursuing around $150 million in contracts in 2026; the start of HyMS data commercialization; and the expansion of its radio-frequency geolocation service. According to Canaccord Genuity, a note by the outfit seen by Oninvest, around 76% of forecast revenue for the year is already under contract, while adjusted EBITDA is expected to turn positive between late 2026 and early 2027.

Canaccord Genuity has a “buy” rating on Spire at a target price of $22.50 per share, having bumped it up from $22 per share in May. The main risks are the concentration of most revenue in the second half of the year and the dependence of government contract timelines on the U.S. budget process.

The stock has three “buy” ratings versus one “hold,” according to MarketWatch data. The average target price is $20.90 per share, implying 83% upside from its Wednesday closing price.

Telesat (TSAT)

Canada’s Telesat is shifting its business from an aging geostationary satellite fleet to Lightspeed, a network of 198 satellites in low Earth orbit. Under a $2.1 billion contract signed in 2023, the satellites are being built by MDA Space, Canada’s largest space contractor. The network will provide lower latency and speeds comparable to fiber-optic connections.

In the first quarter, revenue fell 25% year over year to CAD87 million ($62 million), while the net loss widened to CAD151 million ($107 million) because of a goodwill impairment, a noncash accounting expense. Investors, however, are betting on Lightspeed: the project’s order book has reached CAD1.1 billion ($780 million), including agreements with the Canadian government, satellite operator Viasat, and French telecom operator Orange.

Defense could provide another growth driver. On July 8, the Canadian Armed Forces selected Lightspeed for its ESCP-P Arctic communications program, while a quarter of the network’s satellite spectrum has been reserved for secure military communications.

ATB Cormark has an “outperform” rating on Telesat at a target price of CAD99 per share ($70 per share). On July 13, Scotiabank initiated coverage with a “sector perform” rating at a target price of CAD80 per share ($57 per share). The main risk is a legal dispute with creditors over the Lightspeed assets and upcoming debt maturities: around $1.7 billion in December and another approximately $450 million in 2027.

The stock has two “buy” calls versus two “hold” ratings and one “sell” recommendation according to MarketWatch data. The average target price is $53.49 per share, implying 44.6% upside.

The space industry is gradually developing into a single ecosystem: some companies build satellites, others launch them or provide infrastructure, and many are simultaneously contractors and customers of one another. MDA Space, for example, is building the Lightspeed satellites for Telesat. SpaceX launches Satellogic’s satellites and, under a 2023 agreement, will also put Telesat’s constellation into orbit.

Almost all these companies remain unprofitable, however, and their higher valuations rest on defense budgets, sovereign space programs, and confidence in their order books. For the rally to continue, contracts must turn into revenue faster than companies dilute shareholders through additional share offerings. The July correction showed that the space sector can outperform the broader market, but the cost of mistakes is also significantly higher.

This text is for informational purposes only and does not constitute personalized investment advice.