Transportation breakthroughs, and the exploration they spawn, have always been profit generators, from new ship technology, to trains, automobiles and then aircraft. The question many are asking today is, will declining launch costs, advances in technology and rising public-sector interest position space exploration as the next trillion-dollar industry?

It was over a half a century ago that Neil Armstrong said those fateful words, “This is one small step for man, one giant leap for mankind.” Since we left footprints on the moon, human space exploration has largely centered on manned low-Earth orbit missions and unmanned scientific exploration. But now, high levels of private funding, advances in technology and growing public-sector interest is renewing the call to look beyond the sky.

According to an article released by Morgan Stanley Research, “The investment implications for a more accessible, less expensive reach into outer space could be 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 in recent years, discussions of a sixth branch of the U.S. military—the ‘Space Force’—along with growing interest from Russia and China, means public-sector investment may also increase in the coming years.”

2020: A Space Odyssey

As we stated earlier, a single transformative technology shift often can spark new eras of modernization, followed by a flurry of complimentary innovations. In 1854, when Elisha Otis demonstrated the safety elevator, few had the foresight to see its impact on architecture and city design. But roughly 20 years later, every multistory building in New York, Boston and Chicago was constructed around a central elevator shaft. What is more, the race was on to build higher and higher. In the same way, consider the development boom in Florida, following the innovations in affordable air conditioning.

Today, development of reusable rockets may provide a similar turning point. “We think of reusable rockets as an elevator to low Earth orbit (LEO),” said 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 firms have also been developing space technologies, with ambitions such as manned landings on the moon and airplane-borne rocket launchers that could launch small satellites to LEO at a far lower cost, and with far greater responsiveness, than ground-based systems.

Impetus From the Private Sector

While private-equity projects, like SpaceX and Blue Origin, have grabbed most of the headlines in recent years, public-sector interest has also grown. In August 2018, NASA announced crews for manned flights to the International Space Station (ISS) on commercially developed U.S. rockets. The flights would be the first time that the U.S. has flown manned missions to the ISS, since the shuttle program was retired in 2011. This will likely be an important milestone for the relationship between private enterprise and the U.S. government in the space domain, attracting high levels of media and investor attention.

Also last year, the Trump Administration announced plans to create a U.S. Space Command (including a Space Operations Force and a Space Development Agency). This development could benefit the U.S. Defense Department—as well as the aerospace and defense industries—and help focus and accelerate investment in innovative technologies and capabilities.

Near term, space as an investment theme is also likely to impact a number of industries beyond Aerospace & Defense, such as IT Hardware and Telecom sectors. Morgan Stanley researchers have estimated that the global space industry could generate revenue of more than $1 trillion by 2040, up from $350 billion, currently. Yet, the most significant short- and medium-term opportunities may come from satellite broadband Internet access.

Staggering the Imagination

Beyond the opportunities generated by satellite broadband Internet, with companies like OneWeb, the new frontiers in rocketry offer some amazing possibilities. Imagine rocketing around the globe at the dizzying speeds of frictionless space, rather than the snail-like pace it takes for typical flight from the U.S. to Asia. Mining equipment could be sent to asteroids to extract minerals—all possible, theoretically, with the recent breakthroughs in rocketry.

With the balance we have come to expect from investment analysts, 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. Understandably, many investors would rather think about nearer-term themes that are actionable and can impact their portfolios in the more foreseeable future.

However, initiatives by large public and private firms suggest that space is an area where we will see significant development, potentially enhancing U.S. technological leadership and addressing opportunities and vulnerabilities in surveillance, mission deployment, cyber and artificial intelligence.