Starship Explosion Shows Space Investing’s Unpredictability

The glorious launch and fiery conclusion of SpaceX’s Starship test provided a harsh reminder: Investing in space technology is highly volatile. 

Just as Starship and the Super Heavy booster stunningly returned to earth as a $3 billion shower of sparks after Thursday's “rapid unscheduled disassembly”—jargon for explosion—above the Gulf of Mexico, investors may need to steel themselves against the occasional, unpredictable crash-and-burn. 

One investor not surprised was SpaceX founder Elon Musk. The Tesla billionaire had warned a few days ahead of the launch that everything may go sideways, using language that typically scares off investors: “It’s a very risky flight. There’s a million ways this rocket could fail.” 

Still, wild cheering erupted from SpaceX workers as Starship looped and tumbled before exploding, a clear sign that beyond the flameout, there are those who believe private space travel had advanced Thursday morning.  

Investors may require more convincing. According to space investing firm Space Capital, the $2.2 billion invested in the first quarter in the space economy was the lowest since 2015. The firm placed some of the blame on a drying up of venture funding after Silicon Valley Bank’s collapse.  

“The market mania of the two previous years has fully subsided, tourist investors have left the market and VCs are increasingly reserving capital for companies built on strong fundamentals,” the report stated. 

At the same time, Space Capital officials remained upbeat despite the fiery scene. Managing Partner Chad Anderson told etf.com in an email that the exploding rocket doesn't diminish what was otherwise a successful test.

"It launched, it cleared the pad, and it got through MaxQ (maximum mechanical stress)," he wrote. "This was an important moment for SpaceX and a big step forward not only for Starship, but for the entire space industry." 

Exchange-traded fund investors may have another perspective, since their patience has gone largely unrewarded over the past few years with respect to buying space funds. Those focused on aerospace and defense, like the iShares U.S. Aerospace & Defense ETF (ITA), have mostly performed better than those investing more narrowly in space. 

The $269.3 million ARK Space Exploration & Innovation ETF (ARKX) is probably the best-known space fund. Sadly, it’s known for its share price falling back to Earth over the past year—tumbling 20%—and for $12 million in outflows in 2023. 

The SPDR S&P Kensho Final Frontiers ETF (ROKT) has done a bit better: $1.2 million in outflows this year and a price that’s barely changed during the past 52 weeks. With Maxar Technologies Inc. and Iridium Communications Inc. among its top holdings, the $17.1 million fund’s price edged up less than 1% Thursday. 

Investors in the Procure Space ETF (UFO) may have to wait “a long, long time” (as Elton John sang in “Rocket Man”) for that ETF to make back the 22% decline over the past year. It dropped almost 1% Thursday. 

Investing in unproven technologies that launch projectiles into the void will always be at the riskier end of the spectrum. Citigroup analyst Jason Gursky wrote in a note to clients that making spaceships that survive harsh cosmic environments is extraordinarily difficult, according to CNBC. Still, payoffs may come. 

“In a way, space feels like the opportunity presented by the California gold rush—lots of risk, but plenty of potential upside for those that find the special nugget,” he wrote. 

Contact Ron Day at [email protected] or follow him on Twitter at @RonDayETF