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SpaceX, Rocket Lab, And The Future of Defense and Space Stocks With Industry Expert Lou Whiteman
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Will The Fed raise rates 25 basis points in June 2026? IBKR prediction markets let you trade the outcome alongside your stocks and options, earn interest, get it right and earn $1 per contract@ibkr.com predictions. Last trading day, June 17th.
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Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Bret Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now. Please enjoy this episode.
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Welcome into Chit Chat Stocks, the podcast to help you find your next great investment. My name is Brett Schaefer and I'm joined as always by my co host, Ryan Henderson. And today we bring back on a recurring guest, longtime analyst and contributor at the Motley Fool, Lou Whiteman. Lou is an expert in the defense tech and the burgeoning space defense tech. Maybe we can just all mash everything together now. This new market and the hype in the industry is growing for many reasons, but specifically, maybe, number one is the SpaceX IPO, which is supposedly happening. We're recording this in late April 2026. It should happen, if all goes according to plan, in June. But as we know, with Elon companies, things can change on a dime. And that's the information we have at this time. So we thought, given the hype in the industry, given the SpaceX IPO, this was a perfect time to bring Lu on and talk about some of these exciting companies, this exciting sector, which I think there's a huge tailwind across the whole thing, across the entire defense tech and space sector for the next few decades. But first question, why should listeners and investors care about space and defense tech stocks?
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C
So, I mean, you've watched the TV shows. It's the final frontier, right? I mean, you know this, but it's seriously a. And this is part of it. This isn't the whole thing, but this stuff is cool. All right? And I do think that part of the consumer appeal, like, like, I don't want to overstate that, but I do think that part of it is, is that this is just stuff you can wrap your head around. And in a world where AI is eating software, this is hardware tech, and it's just, it's, it's just cool to watch. But there's also a real there there. And we can get into why. I mean, the current market, you'll see estimates all over the place, but maybe a $500 billion global market today that is as emphasis on global and also emphasis on government and commercial. Government's still a big part of this. It's where we're heading. By some estimates we're at $2 trillion by 2035. That's a 9% CAGR. That would outperform GDP if we come anywhere near there. There's a lot of money to be made. It's not just cool stuff going up into space. There really is. I mean we can get into kind of what the catalyst, what's driving this? Why now? But there is a there, there, there is a need for this or demand for this. The heading in the right direction.
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Yeah. So I guess I'll follow it up with the why now? Why is there so much market enthusiasm for space defense sector right now?
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Yeah, and this goes back. I mean it's pre SpaceX, it's pre the Iran war and all of that. I mean last year was an amazing year for space stocks and that was before all this. Here's just some rough numbers that I think paint a picture. In the space shuttle era it cost approximately $20,000 per kilogram to get something into space. Today that number has gone from 20,000 to about $1,500 per kilogram to get things in space. We are heading towards $200 per kilogram if you believe the Peter Becks and Elon Musk's at World. But look where we've already gone. Even if we don't get to 200, what does that do? That is sort of like. And I do think this is a great comparison, although I know, knock on wood. But think about the moment where the Internet changed the rules on distribution and just lowered distribution costs. And all these people, all of these smart people that might have had ideas that maybe weren't cost, they couldn't do it because of cost. Suddenly thanks to the Internet, you could do a Facebook, you know. And I think that's where we are at space right now. If you have an idea, suddenly it is much more cost effective to start a company to try the idea just because of the lift are down. As costs come down, smart people find ways to use that capacity. That's the moment we're at at space right now. The nice thing about the space stocks is they're the rails. I don't have to decide and I don't want to pick like which is the next Facebook, the Facebook of space and which is the MySpace of space. Right. Either way, they're going to need this technology to get up there. So we get the revenue off of that and we get hopefully the profits off of that no matter what smart people do. But this is really a bet that as costs come down, technology being what it is, smart people will take advantage of those lower costs to do interesting things.
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Now what is the importance of the increase in the defense budget? Because not only are we seeing, and you might know more than this, you follow this industry much closer than I do, but I see, you know, $1 trillion last year going to about $1.5 trillion if the proposal goes through in 2027. And within that a ton of increases. You know, not just a 50% increase, but maybe a 200%, 300% increase for things like autonomous warfare, cyber stuff, space things. I guess to not use a very academic term there. What is the importance for defense spending? Because you see companies like Rocket Lab kind of the second player from the SpaceX in the rails there, they brag about this all the time. Is that important and is that something you care about when looking at a potential investment in the space economy?
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C
Yeah, so you definitely get a pass for the non scientific. Because the truth is that, yeah, the budget's a very messy document and there are things all over the place that either rhyme. It's really hard to get a firm number on. Like what are they spending on space? Best I have of a firm number, but I think it makes your point. Space Force's budget last year was about 31 billion. They are projecting 71 billion this year. Now mind you, Space Force is not the only place where the government is spending on space, but just right there. I think that's a good example of what you're talking about. Does it matter? Yes. The real opportunity I think is in commercial over time. But for now it is the government over the last basically since the Cold war that has helped build the space economy. They are fueling the demand right now you mentioned Rocket Lab. A company like that, you have to basically be invited to join a special club to do government launches, to do Pentagon launches. When you see these like Rocket Lab is wins a place on a trillion dollar contract or whatever, that doesn't mean they're going to get a trillion dollars. That means they are eligible, they are one of the launch partners for this amount of money that's been set aside for launches. Once you're in that club a, that is some guaranteed revenue, some government revenue that you can use to build your business. And also that's sort of like the old good housekeeping seal of approval. If I'm a commercial customer and I'm looking at Launch Partners and I see one of them that has kind of been vetted by the US government as reliable. That helps me build my business the way I see it. To get back to your original question, I think the government funding right now is the foundation that we're going to build this space economy on. I don't know if it happens without them, but it's very much only part of the story in terms of where we go from here.
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On the government side, is that like, does that kind of follow the standard defense contractor playbook of. Well, I guess this isn't all defense contractors, but like the cost plus model where you're getting like a guaranteed markup or is it a little more custom, kind of standard commercial.
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It's all over the place. It depends on what you're doing. A lot of the equipment is the standard model. These launch contracts tend to be a fixed cost and you know the. But again, you know that ahead of time. If you're a rocket lab, you can bid for what you, you know, what makes sense for you. So it's not high margin business by any means, but I mean, look at what SpaceX has done so well both with the government and Starlink using that revenue to build the business. You know, I mean, yes, we need, we're investors, we want profits at some point. But for a lot of these businesses, just you're trying to do really, really hard, expensive things, life becomes a lot easier for you planning if you know you have this stable source of revenue coming in in which to build your business. So I, for now, as much as it pains me to say, don't worry about profits or don't worry about profitability of some of these deals. I do think there's an argument to be made here that just getting this revenue in and being able to kind of know this is coming and plan your business, plan your investments around that, I think there's value there. Either way, how it pans out, the government desperately needs this. So the government is making sure that there is margin for the industry. Probably not as much as investors would like, but there is margin to be had here. It's just not going to be outrageous software like margins.
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D
Okay, you mentioned them there. So let's, let's talk Space X this. I guess we could do the whole podcast on Space X if we wanted to. This is probably one of the most talked about companies that isn't public maybe ever. Maybe OpenAI might be in that conversation as well. But let's go through some of the basics. We don't have an S1 yet. So we don't have all the financial details or anything like that. But a lot of it is kind of, you know, business model wise. It's publicly available. What is the SpaceX business model today?
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C
It's everything. Right. So I break it down and I've been trying to do a sum of the parts here and figure out. And we can talk about that in a bit too. It's kind of where it is, but breaking it down largely. You have the launch services business, which is, as the name implies, the launch. And they do some work with satellite construction. Not as much as some other players do, but that's getting things into space. You have Starlink, which is a big revenue driver right now, but that is the communications business. I think Elon calls it Star Shield now, which is basically all of their other government activity. That's whatever they're doing for defense. And again, that's largely. But there are some other activities there, maybe into kind of the golden dome and that. And then you have Xai, which just kind of appeared out of nowhere and is a whole separate story. Now that's the basic foundation of the business. I mean, I think you can quibble. They also do little things here, there and everywhere, but most of the big revenue drivers of the business kind of come into those categories of them, most of the revenue is starlink, but arguably not most of the valuation, which is kind of interesting.
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Yeah, maybe we can dive into that. I think one, again, we don't have the S1 yet, so we don't have the audited financials. But one thing I think maybe investors look at pre IPO is they look at the Starlink revenue and they kind of disassociate it from the launch cost, if that makes sense. Because yes, they have a quote unquote free ride on a SpaceX vehicle, but SpaceX still has to pay for that. Correct. I mean, this feels to me like overall and again, things can change, but the, the margins might be lower here than people are expecting. I mean, this is an incredibly hard, hard business to achieve, I think.
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C
I mean, again, the other argument with that is too, as a private company, they have used the promise of Starlink to raise external funding, which then fed the development of their launch service business. So, you know, I mean, that has been an advantage for them in the past. Arguably, as you say, now that it's Estab published, it's a little weirder. But yeah, looking at it, I mean, look, we don't really know, as you say, we haven't gotten the numbers yet. But a lot of numbers have leaked out. Something around 18 billion in revenue for Starlink in 2026 on a total base of 25 billion. So that is most of the business from the revenue perspective by launch services, maybe 5 billion. And again, some of that is maybe internal payments. We don't really know how they're accounting for that. Like when they say five, there's a lot of there there. But yeah, I don't know. And again, I don't know how important profitability is going to be for investors coming in here, especially with the addition of the XAI business. Now we know, I mean, we don't know XAI in particular, but we know from the other hyperscalers how much money is being invested in these businesses. I think that the second XAI came in, there is no way, I think this company is going to be profitable based on just adding that in. More interesting question would have been back it out or had they not done that deal. Whether or not would be, I would bet marginally, if anything.
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Yeah, that makes total sense. And as we're writing or as we're recording this, I did try to pull the headline on the valuation and I guess some more leaks came out. Again, we're recording this on April 28, that they are tying SpaceX, the business is tying a new musk pay package to a $7.5 trillion valuation and a Mars colony of 1 million people. So again, these are the ambitious, I guess, goals that the company has. Now let's bring it back to the actual business because Mars colony, you know, people can have a debate on that. We're trying to talk investing. How do they fulfill a $1.5 trillion valuation that they've rumored to go public at 1.5 to $2 trillion? Does Starship have to be a success and send so many satellites into space that they can do this? AI data centers from space plus Starlink at just a gigantic scale. I mean, where they're trading at probably 100 times sales here. Where does the, where is the growth going to come from, in your opinion?
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C
So much to talk about there. Yeah, let's talk about Starship in a second and all that too. But so yeah, you make it a little easier on me if you go with 1.5 trillion. I appreciate that. Let's like real quick. And this is terrible on a podcast, so we won't spend too much time on it. But Starlink, 18 billion or so. What multiple to give it? Look, Amazon just bought Global star for almost 40 times sales. I think that's ridiculous. But if I'm an investment banker on that deal, I'm certainly going to point to that as my comparison for Starlink. Right. So let's give Starlink 25 times sales. Let's ignore the fact that T Mobile is, is at 2 times sales and it's basically the same business. Go ahead, Ryan.
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I was going to. Before we move on to the other components of the valuation.
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Yeah.
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I'm curious what you think. There's a lot of debate around the addressable market for Starlink, given the audience they serve. Where do you think that stands?
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Look, there is a market there. If you've ever been on a cruise ship, you know how nice it would be to have this. Right. But physics latency tells me that anywhere where there is access to a tower, Starlink is the next best thing. Right. Also you have the fact that there's Starlink, there's whatever Amazon is doing and Amazon and buying Global Star, they are obviously all in on this. So the LEO is coming, you have the legacy players like viasat and even what ASTS is trying to do, it feels like there's a lot of competition for a limited market. So pricing power here and especially considering the costs, these things only work. The whole LEO thing, that is low earth orbit, you need a lot of satellites because it's really hard to do this the deeper you go into space. I question whether or not there's enough business for everyone we can get into later, like the different segments of space. But I think Starlink could be a winner there. They have first mover advantage, they're signing deals with the airlines to try and get revenue. So I think they are probably better positioned than some. But no, I don't think this is going to be a high margin business. And arguably, like I say, if T Mobile's trading at two and a half times sales, it's basically the same thing, isn't it? Just connecting devices to networks and I
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mean it's their competitor, right?
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Yeah, yeah. Well, yeah, competitor and maybe partner, definitely ASTS partner. It's hard for me to get behind that 25, 30 times sales multiple. But look again, if I'm a banker on the SpaceX IPO and Amazon just bought a arguably competitor for almost 40 times sales, I sleep well at night giving it 25 times. That still only gets you to half a trillion maybe, right Xai? They gave us a number on that when they bought the company at 250 billion. Now as these things go, Elon may say it's 800 billion now, but that was only a month ago. Let's give that 250. Right.
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And he's negotiating with himself on that deal. So.
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Right, yeah, yeah, so, so let's just get, give that what, what he said. Launch services, five and a half billion or so in revenue. Rocket Labs almost at 60 times sales. So again, I don't know if that's sustainable, but if I'm the banker on the deal, that's, that's my point. So I get another 3, 350 out of that. I'm still just barely over a billion here. So the rest of it, yes, is Starship. And I think, I don't mean even to be a snit here. I think it's Elon's brain. Right. Anytime in the last 15 years we could have done this exercise with Tesla and I would have concluded that the valuation is unsustainable and I would have been wrong. And if I acted on that, I would have lost a lot of money. There is a willingness in the market to invest in Elon's vision of the future and allow him to do it. I think even more so than Starship or anything. And I'd be happy to talk about Starship, but I think that that is the secret sauce to get you. It's a lot easier if it's only 1.5 trillion because you know, then you're only assigning maybe 400 billion or so to Elon's brain. If you go to 2 billion, you almost have, that's almost half of the value. That's, that's a lot of money.
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The irony here with, and I appreciate going through that valuation illustration, but this is, I guess the issue with comparable valuations is the bankers are going to look at it and say, well, Rocket Lab trades at 60 times sales. So here's your, you know, here's what we can sell SpaceX at. But Rocket Lab investors are saying, well, SpaceX is getting a private valuation of 100 times sales. So we got to bid this up and it just becomes this self reinforcing game.
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Valuation's hard, Ryan. Right.
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You know, when we don't have the numbers, like all the numbers.
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Yeah. Valuation is always just something someone's vision of what the future may look like. And you know, as an investor, it's always up to you to figure out, all right, how easy is it is for me to tell that story and how many hurdles, like how many, how many stars have to align to make it happen. But that's, you know, I mean, like I wish there was an easy way to look at valuation. But yeah, no, it's a game unless it works. And again, back to the numbers I was giving you at the top. If this business, if this sector does grow the way people believe it can, you know, eventually it does make sense. But yeah, for now, this is a fully valued IPO, I would say.
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D
On that note, what valuation would you actually be interested in becoming an investor of the SpaceX IPO? What would it have to hit for you to be willing to make that jump?
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C
That's a great question because first of all, I hate investing in IPOs. And I think, to me, look, I have no doubt they will get whatever they want. The interesting question is can they sustain the valuation they get in six months, a year or whatever? And I think that's why all these headlines about index inclusion and all that may be coming from. I think that's their question too. But they will get. I mean, they're not. I mean, we know this, they're not selling 1.5 trillion or 2 trillion in stock, right? They're selling maybe an $80 billion sliver or so. There's $80 billion worth of demand out there at almost any price. So they're going to get what they want. Where would I buy it? I'll be honest with you. I prefer Rocket Lab's business model over SpaceX's and we can get into that if you want, but I don't know. I could never get my head around Tesla's valuation. I'm not sure I'll be able to get my head around this. I would like to see. I'm really worried about the starship. I don't think that is going to ever be a success. I think they have to just go back to Square one on that. That's dangerous. If so, because there's a lot of NASA contracts tied to that. So that's kind of a must have, not a want at this point. But I just think they tried to accomplish something. I don't want to say on the cheap, but kind of on the cheap and it's come back to bite them in ways that they may not be able to overcome. You add in all of this massive XAI cash need that again, I'm assuming they need because all of the other hyperscalers are spending at levels Elon. Elon's not going to take my advice. I would actually love for him to not be focused on the valuation number and to sell more shares and maybe raise more cash and, you know, maybe sell a bigger sliver even if you don't get that same price and just, you know, build up those cash coffers. Because I really want to see how the. To your point, maybe after we see the S1, maybe it'll be different, but I really want to see just kind of with Xai kind of on the back of this company and all of the spending this company has to do on its own. Just on the space side, I'm really curious of what these numbers look like. I'm a little worried about it for now. So I think the answer to your question is lower than this.
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A
I would agree. Ryan's writing a question there, Doc. I was about to ask the same thing, or maybe even just comment on it. I think the cash needs of both SpaceX and Xai, we've had a take that this leads to an incentive to combine with Tesla 40 billion plus in cash on that balance sheet. You raise, like you mentioned, maybe a hundred billion dollars in cash from this IPO. Eventually you can say, look, we have 100 to 200 billion dollars in cash we can play with, go after this huge market. But like you mentioned, there are so many moving parts, so many risks, so many ambitions that it's very, very difficult to value this stock. I don't know if I would buy it at 500 billion, 250 billion. Who knows? I mean, that's still expensive on a revenue multiple, but I want to hit on Rock Lab a little bit. What. What attracts you to their business model more? Of course, they're trading at like 50 times sales now, so maybe, you know, valuation wise, not that attractive. But from a business model perspective, what do you like?
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C
So real quick, just on the Tesla thing, and this might because, yeah, I'd love to talk about Rocket Labs. Don't worry. But you know, this is a weird argument to make, but if you buy into my prem that a lot of the valuation is just investing on Elon's, investing in Elon's vision of the future, why have two separate publicly traded companies to in which to do that? I'm actually really curious what happens to Tesla's valuation if and when SpaceX goes public? Because arguably, if you are more invested in Tesla because you're attracted to Elon and think Elon's going to build something, do you want a kind of dented automaker story or a space story as your vehicle to do that? As silly as it says, I don't think we're going to use cybertrucks on the moon. I really don't. So I don't think you can create the synergies you want to. But I think you can sort of make the case is since you're basically just investing in the Tony Stark Enterprise or Elon Inc, why should there be two separate tracking stocks on Elon's brain? But anyway, we'll see, we'll see. If they do that, there's a lot of complications. As for Rocket Lab, so Rocket Lab, the difference here is that they are trying to build the one stop shop for space, the end to end company. Back to what the numbers I gave you at the top about how just this commercial economy is going to explode as costs come down and not only smart entrepreneurs but businesses are going to say, wow, at this cost I can see I want to do XYZ in space. I'm going to go out on a limb and say all these companies aren't going to hire a team of aerospace engineers. They are going to outsource this function. What Rocket Lab is building is if I'm a corporate customer or an entrepreneur, I go to them, they will design my satellite, they will build my satellite, they will launch my satellite and they will maintain my satellite. I think that's the killer business model for this commercial space economy that people are trying to build. I think that that's just a better option for. I mean there's a great story. Was it in the 90s that Walmart was using satel to route trucks? Like just kind of how many cars are in our parking lot? That's where we want to do resupply first. I think there are all sorts of potential ideas like that that are kind of cool. But I don't think any of these companies really want to waste too much time with it. I think if you have a reliable partner that will do it all for you that that might be the killer business model. That's what Rocket Lab is building. They're also because they're in all of these places, they're using all of that money from their spac. And yes, they wear a spac. It's proof that you can have OK stacks. They're using that money to buy up what they see as bottlenecks in the supply chain. A that gives them access to these parts so they can keep their business moving. Also that gives them a chance to gain revenue off of SpaceX and some of these other companies that are doing these same things. I just really like this company. I can't justify the valuation today. But again we talked as I said this before, valuation is always sort of just like what story do you have to tell yourself into the future? And I do think that Rocket Lab, if they execute the plan, if the neutron comes in and I can't caveat this enough, it's like in everything investing, this is rocket science, this is hard that it might not happen and there are risks. But if it goes to script, I very much believe they're going to be much bigger than a. What are they today? A $40 billion company or so. I think that's quite possible. They're not worth that today, but I do think that they are headed in the right direction.
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A
Okay, back on the defense and space sector in general or just the whole industry? What niche or sector within there interests you the most? Now this doesn't mean, like you mentioned, Rocket Lab may be trading at a high valuation table. Regardless of valuation, what business models or sector interest you the most as highly investable or could create high quality businesses?
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C
Yeah. So let's, let's break it down and again this is. We'll try and do it simple for audio, but space isn't all the same. These companies aren't all doing the same, which kind of makes it hard. I kind of have broken it down in my head to maybe five categories. You have launch and infrastructure, which is what we've mostly been talking about. You have connectivity, which is starLink, which is AST, which is apparently Amazon and all these companies. You have Earth Observation, which is, you know, Planet Labs is a big one here. Maxar Technologies. It's not just imaging though, it's not just your Google Maps. It's a lot of the dark stuff, the Pentagon stuff, which is surveillance too. Black Sky, Hawkeye360 have all come public there. You have Lunar, which is kind of just out there by itself, arguably part of infrastructure, but again SpaceX intuitive machines. Red wire comes in there. And then finally security, which is the defense side of it, which is mostly the defense contractors. Lockheed Martin, Kratos, L3, Harris, Leidos, Northrop Grumman, those guys. Now, of those sectors, we've already talked about it, but I really, really like Launch because I'll tell you something, guys, and we saw this with ASTs, I don't know if you saw their valuation, kind of took a dive after.
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A
It was a mispositioning.
- [30:02]
C
Yeah, yeah, yeah. They called it deorbiting. That's a polite way of saying that's like when your parents told you that your dog was going off to the farm. That's a nice way of saying that that satellite isn't with us. Deorbiting is just, you know, a nice way of saying that. But launch is a real issue. And not to pooh pooh on blue origin. They're mostly doing a good job. But I bet you ASTS wishes they had more options right now after that. Fair. For all of the talk of launch, if a company can establish itself as a reliable launch partner, and again, huge if, but that company will be a success. We just don't have the capacity to launch everything we want to right now and bring down costs. Part of it too isn't just technology. Part of it is there's only so many places to launch this from. I'm guessing neither of you won a rocket launch site in your backyard, right? Rocket Lab. One of the reasons I really like Rocket Lab is they have dedicated launch facilities in Virginia and New Zealand. So they have a lot of diversification there. But you look at a company like Firefly Aerospace, they are almost on the cusp of being able to say, yes, they hit that criteria. They are a reliable launch partner. If, and again, I'm underlying, if there's no guarantees if they get there, that's going to be a winning business just based on the demand. So I really like launch. On the other side of it, we kind of talked about connectivity. I don't know if there's enough business for all these players, especially considering their costs. And I don't know how profitable it's going to be for the winners just because again, you were going to have constant need to replace to maintain these satellites. You think cell towers are expensive, Wait till you're launching things into space like hundreds of satellites in a constellation. I question that. And I also question again, when you're trading at, I mean, ASCs, you almost can't give a valuation on because they have so little Revenue. But even if they get to revenue this year, like they hope, they're talking about a billion in revenue, what do they do to justify a, what is it it be a 50 or 60x multiple to T mobile? I struggle with that. I think there's a need for that. I just don't know how as an investor, how that works out. The other area I'd mentioned that I'm kind of not worried about, but questioning is Earth observation. I get why they're doing it. And Planet Labs has been a big success this year over the last year or so. It was down before, but Planet Labs has really bounced back. Nice. We all love Google Maps. I think we see the need there. There's definitely more of a need for it. The Pentagon's a big customer here. They have some of their own. And definitely, especially right now, the Pentagon would probably pay up to get an updated map of the Middle east every, I don't know, 20 minutes or so. But that's sort of what we're assuming corporate customers are going to do as well. And that is what we're using to justify these valuations. Given the competition and given, I don't know, even if a corporate customer has use for this data, they're going to need it updated in that much real time across the board. If you're a farmer, you don't need daily updates on that. I just worry that a lot of what's baked into these valuations and given the fact that I was able to rattle off four or five companies that are doing this, as an investor, I see the need, but again, that area scares me. So that would be a few. I think security is the other. It's lower margin, Ryan, for the reasons you mentioned before. But security is just a business that will grow and the Pentagon now considers space to be a contested environment. That's a big change in Pentagon wording from not just we're going to be up there flying stuff to we need to be able to shoot things down and maybe shoot at things from up there is a very layman's way to put it. That's a whole lot of revenue coming in if that's the case.
- [33:59]
D
So on the communication side, do you have any idea what the split is between commercial and residential or consumer? I guess like is the majority of Starlink revenue. I don't know if they've ever broken this out. Would you guess it's more like airlines, businesses, cruises, that kind of stuff, as opposed to me putting a something up in my yard?
- [34:24]
C
I think. And as far as I know they haven't broken this out, but my guess or my gut would be it's trending in the right direction. It's trending towards enterprise, I guess you call it. It's trending towards enterprise. But it has for the most part. It was launched as a consumer device and it's probably the majority in the past has definitely been consumer. That would be my strong guess. I do think they're trying to build towards the enterprise for the same reason OpenAI and Anthropic are. You know, it is just an easier source of, of sustainable revenue and you get much more per sales with that. And I think they are sort of moving in that direction. But it is it. It was definitely, it was built on the back of consumer adaptation.
- [35:11]
D
Okay, a few more questions here. Basically the opposite of what Brett asked. What sector do you think will disappoint investors the most within the defense space industry?
- [35:23]
C
So I mentioned the space side connectivity and Earth observation. So we don't want to rehash that again on the broader defense tech. One thing I'm watching very carefully and this is a stock that I really like for the long term, but I'll pick on one. It's a lot of them. But Kratos Defense and Security has been building really, really cool stuff for the UAV world. You can Google it. The Kratos Valkyrie, the loyal wingman. And the idea of this is that imagine if as an F35 goes into battle flanked on its side are say six mini F35s, not just little drones like what Aerovironment is doing that are backpack drones, but mini F35s that a you can overwhelm the defenses with firepower but B, it gives air defense systems seven targets and only one of them has a crew in it. So you just bring down, it brings up survivability. These actually have enough AI goodness in them to basically read the throttle off an F35, read the joystick, what the pilot is doing and react in real time. They are really, really cool. And they have been the long term bull case for Kratos forever. We've been sort of waiting. They have been with the Air Force for gosh going on almost a decade now. Air Force keeps saying good things. We still haven't gotten this huge order and again part of the appeal is they're a lot cheaper than an F35 so it's not going to be, it's not going to make them. Lockheed Martin, this has been, I want to believe for me for a decade and it hasn't worked out. I worry that now that we have actually gone through all of our missile supplies or not all of them, but we finally have to get to replenishment in the budget and the Pentagon every year part of the dance that goes on is the Pentagon puts aside a lot of money because saying we need to replenish our missile stock piles and Congress says that's cute but I really like this program. And the kind of missile replenishment is something that can always be put off till next year. So that is usually the place that you know, suffers in budget battles just because you know it's not, it's not as flashy. I feel like this year we really have to buy those missiles and that is going to affect how money is allocated and this sort of bleeding edge kind of there but not there yet stuff that Kratos is doing and sort of the bigger UAVs and sort of this. For the long term I still think we're heading that direction. But in the near term I do worry that we will. If nothing else, some of this will be delayed or more muted than we thought just because that money has got to come from. Even at the higher levels, that money has got to come from somewhere. If we're going to rebuild our missile stockpiles and all of the deals they've done with Lockheed, with L3Harris, with all these companies to kind of put money into the supply chains implies that the Pentagon is actually going to spend there this year. So again, where does that come from? I don't think it comes from soldier healthcare. I don't think it comes from building the new Trump class battleship. I'm just gonna go on a limb and say that's gonna get through. Right. So it probably comes out of the hide of some of these defense techs where we really should be spending but probably that's what can get put off till next year.
- [38:40]
A
Yeah, this, that whole discussion just makes me think the. I don't want to say it's going to be a you know, 10 bagger. It's a big defense contractor. But the one where I feel like it's very hard to lose money is Lockheed Martin. You have that 35 long term deal. You have the. Maybe you can. The leader in missile interceptors definitely up there.
- [39:00]
C
Yeah, they all do different parts but
- [39:02]
A
yeah, they're going to have nice demand over the next five to 10 years it looks like. And then you have Skunk Works which has your own defense cutting edge innovation. There's. Is that the correct way to put it or am I getting.
- [39:14]
C
Yeah, no, and look, here's the thing. I mean these on the defense side, they all trade in tandem because they have the same customer, right? So you kind of see the time to buy any one defense contractor is when it's out of favor for some reason of General Dynamics. And it's huge Gulfstream business. After the 2008 financial crisis when all of the CEOs were shamed about their corporate jets, we saw a real slowdown in that corporate jet market market that was the time to buy General Dynamics because it hit them. And right now, Lockheed Martin, let's be honest, they've kind of been on a losing streak. They lost the new fighter to Boeing. They don't have just that signature platform that's shiny and new. So they have sort of been out of favor. I think that at worst it's a good total return play. And yeah, to your point, they lean into a lot of the areas on the missile defense side. They don't necessarily make the projectiles that we use to shoot down, but they make a lot of the brains and the sensors and the radars behind it. That's just like in every other industry. I'd rather be on the high value side of it, the electronics, the sensor side of it. I do think that, yeah, they are pretty intriguing, especially for a long term perspective. Next few months, who knows? Because they are sort of in a losing streak and they don't have that flashy new thing to look at. But yet, yeah, I think if you're looking at the long term, I love Lockheed Martin right now.
- [40:35]
A
Okay. We've talked a lot about stocks that are potentially overvalued or let's say stretched. What is one stock? As we round the corner to the final lap of this interview, what's one stock you have as a, a space defense tech on your radar kind of intrigues you at the moment and why.
- [40:55]
C
So I've used if a lot and I've been trying to caveat a lot and we have to do that again. But I'm going to say so right now, if you pull up the numbers, this is not going to like an undervalued stock. And it's not right now, but a company called Redwire RDW is the ticker. And guys, I think last time I was on here I was talking about this company. So, you know, there's no higher compliment for me. Redwire wants to be the transdime of space. Wants to be. I should underline, but Transdigm basic business was this sort of private Equity modeled rollup of key parts of the supply chain. That and get sort of similar to what Rocket Lab was trying to do. Just find places that are where you can get margin in the supply chain. Roll that up. They are one of two big providers of solar, of solar panels for space. So if those data centers actually happen, and I'll take the under on that, but still, if they do, but you know, things need power in space, they are right there in the solar panel supply chain as a dominant player. They've been doing this all over the place. They actually are a former private equity company that went public. I'll be honest, it hasn't gone as well or as quickly as they have hoped, which is why it does look overvalued right now. But last summer they bought something called Edge Autonomy. Edge Autonomy is basically just below the space line in high altitude drone systems. That is a much more mature company with much more mature contracts and revenue. The case now is that Edge Autonomy, at worst sort of funds Red Wire from here. So they're much more self funding. It could actually bring them to, dare we say it, profitability, or at least bring down a lot of the multiples over time. If you're looking backwards, I think. And again, things have to go right. They need to execute here. And it is a rollup story and there's a lot of danger there. But Red Wire could be on the cusp of a valuation reset as we cycle through the year. And Edge Autonomy, assuming it is what I think it is, as if that as that impacts the balance sheet sheet and the P and L statement, I think that company's gonna look a lot more attractive three months, six months from now than it did maybe six months ago.
- [43:13]
D
All right, Red Wire Corporation. Rdw, last question for you here, Lou. What do you think investors misunderstand about defense and space stocks today?
- [43:26]
C
All right, so let's break that down. Defense and space real quick on the defense side, and we saw it with what happened in the Middle east, the worst time to these stocks is when conflict breaks out. All right, it's sort of like I've been joking about this. You don't buy energy stocks now. Now is the time that you're glad you owned energy stocks, right? Kind of. Similarly, these are long cycle businesses. Even if what's going on in the Middle east does affect demand, like say, missile replenishment, this will play out over years, not quarters really, if we want to be crass about it. What's going on in the world right now is thesis confirming, not thesis establishing Right. The world is a dangerous place and you need these things. It's always, almost always a bad idea to just rush into these stocks when something happens as what we've seen, the best way to own these stocks is to remember the government can print its own money. Money the government has a vested interest to make sure the supply chain doesn't go out of business. So they will. Even if you're losing in this game, even if you're the Alta Vista to Google's search engine, the customer will find you revenue to keep you going. These are the ultimate buy and hold. Just have it in your portfolio for ballast and don't try and time the market on these. I think on the defense side that's what I'd say. On the space side I'd go back to just the fundamentals of war. What opens up as the cost of launch comes down that is just such a gate keeping restraining our capability to do things. I don't think Mars can happen. Everyone I know who knows biology says that wouldn't be a good idea. I don't know if we're going to mine on the moon, guys. If we could, we can't even mine at the bottom of the ocean.
- [45:18]
A
And as hard as Optimus, Lou Optimus is going to go for us.
- [45:21]
C
Yeah, okay, that's fine. Why don't they? I mean look, the bottom of the ocean is very, very hard and there's a lot of minerals there. This is kind of a rule of thumb for me. It's probably terrible and you'll probably get nasty letters about it, but if we're not doing it at the bottom of the ocean right now, we're not going to be doing it on the moon because just everything is so much harder there and we don't have the material. So I'm not really bullish on any one individual sci fi things like that, I can see that they all could happen, but just the unknown potential of lowering the cost barriers and letting corporations and entrepreneurs experiment, try things and see what work. Similar to like I wouldn't have predicted Facebook in 1997, but here we are. I think that that is, we all talk about how overvalued it is right now. And again based on today's numbers, I'm not going to argue that point but I do think that if you buy into that, that as the cost comes down, amazing things are going to happen. I think that is the opportunity and that's the reason to maybe not focus so much on today's valuation.
- [46:30]
A
Okay, this makes me think of one More question. Maybe two I can combine into one. Have you ever looked at Kraken Robotics, something I've looked at for the last few years and Anduril, I guess one of their customers. Are you excited for a potential IPO from them?
- [46:45]
C
I'd like to see more, especially on the Anduril side. I mean, I, I think there's a lot of potential there. And again, they are in favor with the current administration, so that should help. I would love to see them public to really kick the tires on that there. It's worth saying that there are a lot of, of people trying to do what both of these companies are doing. They are much better, especially on the Anduril side of maybe promoting themselves, which again, more power to them. I don't think that's necessarily a deal breaker, but I'm curious more than I am excited for either of those. Kraken is fascinating because Kraken there is a real there there, especially on the battery side. Maybe not their finished product, but I think their batteries, which is kind of think what they're supplying to Anduril. There's a real thing there. But I have seen, I will warn on this and I know it's not your listening audience, but if you go on Reddit and you see some of the breakdowns of the potential and the estimate, I've seen estimates of like what they're getting per Unit on Anderal, $2
- [47:46]
A
million or so per unit, which is
- [47:48]
C
higher than what Andre is saying they're going to sell the things for. So, you know, just, just be careful. I think there's a lot of excitement. Kraken, Kraken, I would love to have known about two years ago, maybe, but at its current valuation, no, that is not in my portfolio because again, they have work to do to get there. And there are a lot of companies, they seem to be ahead and I'm not going to bet against them either. I would not short them with your money. But I do think that sometimes wait and see is good enough. And again, again, I know I sound like a hypocrite after what I said about Rocket Lab, but I just, I see in my head it's a clearer path to where they are going and their ability to get there.
- [48:35]
A
All right, that's a great way to wrap things up. Lou, for any of the listeners that haven't heard you before, tell them where you can find more of your work.
- [48:43]
C
So mostly over at Motley Fool. I am on Twitter at Lew Whiteman and BlueSkyuWhiteman2. But yeah, come Check me out. We do a lot of fun stuff over at Motley fool, so love to see you over there.
- [48:55]
A
All right. Love it. And let's, I think, get out of here. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or a recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone once again for tuning in. Thank you for Lou for joining. Thank you to our sponsors, Interactive Brokers, Fiscal AI and more. More. And we'll see everyone next time.
- [49:35]
F
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- [49:58]
A
Com.
- [49:59]
F
That's Stock write.
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E
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