The early months of 2025 have made one thing clear: We are no longer in the honeymoon phase of the commercial space era.
The sector is maturing, and fast, but with maturity comes friction. Investment has become more selective, governments more involved, and competitive moats more fragile. Space remains one of the most powerful platforms for economic and technological transformation, but it's also increasingly a domain shaped by geopolitical realities and macroeconomic constraints.
The first quarter 2025 Space IQ report presents a sobering yet forward-looking view of the space economy and its structural potential, emergent threats, and key leverage points.
A framework for serious capital allocation
Our view of the space economy rests on a layered technology stack: infrastructure, distribution, and applications.
Once considered contrarian, this framework is now standard across top-tier institutions from McKinsey to the World Economic Forum. It helps us move beyond the rocket fetishism that has long defined public discourse.
Infrastructure encompasses capital-intensive endeavors like launch vehicles, satellite constellations, propulsion systems, and lunar assets.
Distribution includes the software and hardware that enables satellite data to be processed, routed, and delivered to users.
And applications are what ultimately reach consumers and enterprises, from ride-hailing to climate analytics to battlefield intelligence.
What’s crucial is understanding that infrastructure, while foundational, is not the whole story. Focusing solely on rockets and orbital assets misses where much of the innovation and disruption is occurring: the software-defined layers that sit atop the physical backbone.
Volatility meets velocity in Q1
This quarter was marked by tension between macro headwinds and technical tailwinds. On one hand, capital markets were rattled by a post-election surge and subsequent crash in US equities, tariff risk, and growing recession fears.
Space stocks briefly soared on Trump’s renewed focus on defense, only to be hammered by inflationary pressure and capital constraints. Early-stage startups are particularly vulnerable here. Many are still recovering from the post-ZIRP (zero interest rate policy) hangover, with burn rates outpacing fresh capital availability.
But there are offsets. The same geopolitical instability that's undermining public markets is driving national urgency around space resilience. China’s simulated space “dogfights” prompted the US Department of Defense to double down on orbital supremacy, with the proposed “Golden Dome” missile shield potentially unleashing a new wave of federal spending.
This creates investable opportunities across defense-oriented startups in space domain awareness, AI-driven command systems, and hardened infrastructure.
Meanwhile, Europe is attempting to decouple from US reliance via the 800 billion euro ReArm plan and alternatives to Elon Musk's Starlink. It’s an ambitious goal with serious gaps: EU firms lag in launch cadence, terminal affordability, and commercial viability. Even French satellite operator Eutelsat (touted as Europe’s best hope) remains dwarfed by Starlink’s scale, and its largest investor is hedging by partnering with SpaceX (SPAX.PVT) to enter India. The bottom line is that rhetoric is outrunning readiness.
Not just SpaceX anymore
For years, SpaceX faced little serious competition, but that’s starting to change. In January, Jeff Bezos’s Blue Origin reached orbit for the first time and is now progressing toward approval to launch US military satellites. Rocket Lab (RKLB) and Stoke Space have also joined the competition for lucrative government launch contracts, creating a more crowded market.
Meanwhile, Relativity Space (RESP.PVT), a once high-flying startup that saw its valuation plunge 97% after setbacks, may be staging a comeback. Former Google CEO Eric Schmidt quietly acquired a controlling stake in March, signaling renewed investor interest.
For investors, the message is clear: The launch market is no longer a one-horse race, and while some space startups have stumbled, select players may offer turnaround potential as competition heats up.
A Blue Origin New Glenn rocket lifts off on its inaugural launch at the Cape Canaveral Space Force Station in Cape Canaveral, Florida, U.S., January 16, 2025. REUTERS/Steve Nesius ·REUTERS / Reuters
The applications layer: Strong defense, weak everything else
Applications, historically the most capitalized layer, secured $2.6 billion this quarter, but the number of deals hit a multiyear low. There’s a clear bifurcation: Defense tech is on fire, but commercial location-based services and logistics are freezing over. Companies like Shield AI (SHAI.PVT) and Saronic raised monster rounds, while others are relying on bridge financings to stay afloat.
The path to exit is another angle here. While infrastructure requires high upfront capital expenditures, application companies raise nearly 10 times as much equity on average to reach an initial public offering (IPO). They need massive scale to justify their valuations — and in today’s macro environment, that path is more treacherous than ever.
Still, exits are happening. Q1 recorded $5.7 billion across 21 exits, including the Karman Space and Defense (KRMN) IPO and Niantic's $3.5 billion sale. Importantly, the median acquisition multiple held steady at 2.0x, which is down from 2021’s peak but far from catastrophic. This is a rational repricing, not a death spiral.
GeoAI, direct-to-device, and the rise of strategic software
Q1 also saw a breakout quarter for geospatial artificial intelligence (GeoAI).
Software developer Niantic launched a spatial computing platform. SkyWatch partnered with GIS software supplier Esri. Planet Labs collaborated with Anthropic (ANTH.PVT). And Xona Space Systems inked a deal with Trimble (TRMB) to boost precision GPS.
This is the next leg of the space economy, where massive volumes of satellite data is finally made useful through machine learning, semantic indexing, and real-time analytics.
Distribution-layer companies are doing more with less. They remain underfunded relative to infrastructure and applications but are quietly powering the most critical systems, such as resilient communications, battlefield networks, and edge-based geospatial analysis. Don’t let the low round count fool you; innovation here is quietly outpacing capital.
Elon Musk gives a tour to President Trump and lawmakers of the control room before the launch of the sixth test flight of the SpaceX Starship rocket, in Brownsville, Texas, on Nov. 19, 2024. Brandon Bell/Pool via REUTERS/File Photo ·via REUTERS / Reuters
What investors need to watch
If you’re managing capital in this category, there are three key themes you should be tracking:
First, the AI layer is now strategic. AI’s integration into space (across geospatial intelligence, satellite communications, and sensor fusion) is not a novelty. It’s a competitive necessity. This will become the primary differentiation for companies in distribution and applications over the next 12 to 24 months.
Second, defense spending will carry the sector. Until the IPO window fully reopens and the cost of capital normalizes, national security will be the biggest tailwind. Prioritize companies with clear Defense Department pathways, mission relevance, and dual-use applicability.
Third, an infrastructure reset is coming. The imminent ramp-up of SpaceX's Starship could collapse the cost structure for the infrastructure layer. When that happens, legacy providers with fixed-cost-heavy business models will be at risk. Conversely, capital-light innovators in station design, logistics, and in-orbit servicing could suddenly be massively undervalued.
As a final word, this isn’t 2021. The froth is gone. But so is the hype. What’s left is a more grounded — and investable — space economy. The companies that survive this crucible will be leaner, more focused, and more essential than their predecessors.
We don’t need more tourist rockets or speculative SPACs. We need operational excellence, scalable architectures, and deep defensibility. That’s where we’re investing. Because when the dust settles, the space economy won’t just be bigger — it’ll be better.
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