Not quite the mission of the starship USS Enterprise of Star Trek, but space is the next new investment frontier, announced DBS Group Holdings’ chief investment officer (CIO) Hou Wey Fook in the bank’s CIO Vantage Point report. The report was released in conjunction with DBS’s 3Q2024 outlook report in June.
At the media briefing on June 24, Hou explained that the suggestion stemmed from emerging technologies such as autonomous vehicles, artificial intelligence (AI), robots and reusable rockets. “[The abovementioned technologies are] narratives we thought would appear only in science fiction movies,” he adds. “Surely, it’s not too early to keep a close eye on the development with space.” According to The Space Report, the space economy is expected to grow by 41% to reach US$772 billion ($1.04 trillion) by 2027 from US$546 billion in 2022.
While there have been several attempts to know and understand space better through the years, it is only within recent decades that mankind has seen a “remarkable advancement” in the exploration of space.
The team points to the entry of private companies like Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin and Virgin Galactic, founded by Richard Branson and the Virgin Group conglomerate, which has significantly reduced costs and created new investment opportunities within the industry.
For instance, SpaceX’s pioneering of reusable rockets has reduced the launch cost of heavy payloads, or super heavy-lift launch vehicles, by about 98%. This cost reduction has significantly increased the number of launches and payloads, which the team describes as a “game-changer”.
Hou notes that the advent of satellite Internet constellations, which promise to deliver Internet access to remote areas without cable or fibre optic connections, represents a potentially untapped market of three billion people.
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The bank’s report, referring to estimates from the World Economic Forum, notes that applications such as satellites for communication, navigation and launch vehicles make up the backbone of the space economy, forming about 50% or US$330 billion of the total space economy in 2023. Within the satellite communication markets, Market.us forecasts the space to grow at a CAGR of 9.4% from US$76.1 billion in 2022 to US$182.7 billion by 2032.
Other factors driving the case for space investments include space-related manufacturing, where the DBS team sees opportunities for innovations in materials and production techniques and space tourism. An adventure that once cost millions to travel to space is now more accessible with a cheaper price tag of US$250,000 to US$450,000.
“From now until 2027, companies are scrambling to grab a slice of the pie, opportunities abound in commercial spaceflight, tourism, satellite internet, Earth observation, rural connectivity and navigation systems. But the possibilities of the space economy are limited only by our imagination,” says DBS via a video presented at the same briefing.
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It adds that companies that seize opportunities in space, such as Airbus, Lockheed Martin, Northrop Grumman, Honeywell and even private companies like SpaceX, are the ones “ready for takeoff”. Lockheed Martin and Northrop Grumman are American aerospace and defence companies listed in New York. Nasdaq-listed Honeywell is mainly in the business of aerospace, building automation, performance materials and technologies, as well as safety and productivity solutions.
“Revenue contribution from the space economy to these companies may not appear as significant yet, but we see [that] it can only grow,” says Hou.
Other companies involved in the space economy include Alphabet, Amazon, BAE Systems, Boeing, Komatsu, L3Harris, Raytheon (RTX) and Thales.
The DBS chief investment office is constantly looking for new investment trends. Last June, the team highlighted AI as a sector to watch. At the time, before shares in AI and AI-related companies skyrocketed and before AI as an investment theme became a consensus call, the bank recommended investors explore long-term investment opportunities in big tech, hardware manufacturers, cloud platforms and cybersecurity.
Then, many commentaries suggested that AI was a “passing fad” and a bubble that is not dissimilar to the dot-com bubble, which burst in March 2000.
“We took the stand [that] AI will drive real earnings growth and stock prices of AI companies would reflect the growth after that. Indeed, this view has panned out with astonishing returns. Nvidia, the purest AI play, shot up [by] 177% since we put out [our] report [in] June 2023,” Hou adds.
“A basket of AI leaders returned 71%, [which is] huge compared to 20% for the broader global market. [This is], by any measure, is not a number to be frowned upon,” he adds. “We also said the ecosystem of AI would broaden out across the various sub-sectors from industry, from the infrastructure play of semiconductors to cloud platforms, software services, cybersecurity automation and end-user device... Clearly, we are seeing this play out today.”
