Chit Chat Stocks - He Called Palantir and Nvidia. Here's What He Thinks About Rocket Lab Stock Today (Ticker: RKLB)

Episode Date: August 20, 2025

On this episode of Chit Chat Stocks, Brett and Ryan speak with Simon Erickson of 7investing to give an update on Rocket Lab (Ticker: RKLB). Simon came on the show a year ago to discuss Rocket Lab stock, and it has crushed the market since then. We discuss: (02:55) Rocket Lab's Methodical Approach to Space (05:14) The Neutron Rocket: A Game Changer? (08:47) Financial Implications of Neutron's Launch (15:42) Acquisitions and Strategic Growth (19:13) The Balance of Launch Services and Space Systems (24:31) Rocket Lab's Strategic Shift in Satellite Manufacturing (25:24) The Importance of Neutron for Satellite Constellations (26:46) Understanding the Competitive Landscape in Space (29:19) Growth Drivers for Rocket Lab's Future (30:58) Government Contracts and the Haste Program (34:25) Financial Projections and Free Cash Flow (36:55) Price Targets and Portfolio Management (40:55) Future Outlook for Rocket Lab in 2035 (44:05) Exploring Moon and Mars Missions 7investing: https://7investing.com/ ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into the Chit Chat Stocks podcast, a podcast to find your next great investment. Today, we have a guest, Simon Erickson, founder of Seven Investing, recurring guest on the show, and founder of a research service that has had some electric picks over the last few years, such as NVIDIA and Palantir, and a company we have covered before on this show about a year ago,

Rocket Lab. The stock is up close to 700% since we last talked and we thought it was a perfect time to bring back on Simon to discuss this company. Simon, welcome to the show and let's get right into it. What has happened to Rocket Lab since we last discussed, I think it's September of 2024? Yeah, thanks for having me, Brett. It's so nice to be back here again. I love your show. I think you guys ask fantastic questions and you have kind of a long-term mind frame that I like for investing. So I'm always pleased and happy to give another update. The Rocket Lab question of what's happened since last time we even talked about it is the skyrocket, right? A shot to the moon. Pick your pun of what you want for this end-to-end space company. It has gone from $4

a share in March of 2024, about a year ago, to 10x that price, more than a 10x order of magnitude growth within the last 12 months. I wanted to check back in with you guys now because we did talk about Rocket Lab a couple of months ago. And some people that have been listening to your show said that that changed their life, even just hearing that podcast of yours. And I think it's a really good time to kind of go back in and dig into the trenches of what's going on with this company. Why is it up, whatever you mentioned, 700% over the last six months or so? And are those key and sustainable, or are there more things we should be looking at? So pretty excited about the conversation and also be chatting with you guys again here. Yeah, it's nice words to hear that

our podcasts changed their life. Let's talk through, they reported earnings, I believe, last week, August 7th, it looks like, Q2 earnings. Give us an update on the business progress. You just mentioned the stock has had incredible returns over the last year. What kind of progress are we seeing? What was sort of the memo on the Q2 earnings? The interesting thing about Rocket Lab, to frame my answer for that one, Ryan, is that this is a very methodical, long-term, disruptive company. And in a lot of ways, it's similar to Elon Musk. And we can say a lot of negative things about Elon. We probably won't get into that right now. But one thing he does really good is he goes after really big

problems. And then he methodically figures out piece by piece, how am I going to attack this? And Rocket Lab did exactly the same thing when Peter Beck founded the company. This is a guy that's a lifelong rocket scientist since he was a kid. And he said, how can I open up space for commercial enterprises? It doesn't just have to be large government funded projects. How can I open up there? And he said, I've got to start with a smaller rocket that people could afford to even hitch a ride on and place their satellite into the orbital plane they wanted to. And so the first couple of years of Rocket Lab were all about Electron, just getting a launch date if you're a small company and paying them five or six million

dollars to get up into space, right? To do video, to do surveillance, to do sensing, to do imaging, whatever it is you wanted to do. There were a handful of customers that wanted to do that. That was phase one. Where do we stand today in the quarterly update we just got for second quarter of 2025 is Rocket Lab is building a bigger rocket. And the story right now is not about Electron, but it's about Neutron, and carrying not just 300 kilograms of payload, but 10 tons, you know, 10,000 kilograms of payload, which is an entire satellite constellation. What can you do with that? What kind of customers are interested in that? And then just like I said about the methodical long-term disruptive approach, now that we've gone from small customers

launching small payloads to larger customers launching entire constellations, who's going to be the next group of customers that Rocket Lab will be able to serve right now. And so the update that we got here in the second quarter of 2025 is mostly about the progress for Neutron. Again, the medium lift rocket that they have, they're still expecting to launch that in the second half of this year. Probably, you know, coming up on October, November kind of timeframe, but that's going to be, you know, a 30X larger payload than what we've been seeing from Electron. Probably going to redefine the entire business, at least from the financials that we've seen thus far in its entire history. Let's dive more into Neutron, as you mentioned, is the most important part of the company today.

And for anyone that's looking for, we're going to talk financials at the end, you know, margins, Simon's updated DCF they provided for his subscribers. Let's go into what exactly the Neutron is for. what would be its usage backlog that they have or any customer commitments today what the capabilities it gives them and then what financially versus and you mentioned the electron just for context for the listeners the electron is a smaller rocket I think smaller than anything even SpaceX does so it's for small nimble projects that as you mentioned cost about five to ten million dollars for a launch but for the neutron where does that change and how why is it so important for Rocket Lab's ambitions? It's going to be this step change that kind of

unlocks the economies of scale for this entire industry. That's the short answer. The longer answer is it's really hard to build rockets, especially big rockets. It's not something that you and I, if we're given a billion dollars, can just say, hey, guess what? We're going to go do this right now, Brett. And we've seen other companies, whether that's Astrolabs or others, that have tried and raised a lot of money in 2021. You remember the SPAC IPOs, everybody was raising a lot of money. Who is left standing?

It's Peter Beck in Rocket Lab, who has credibly done what they said they're going to do and has succeeded in launching small rockets into space. So now the question is, okay, that's awesome. Let's see if you can do it. You know, let's see if you can actually get Neutron onto the pad, place it successfully into orbit, which is by itself very, very hard to do.

Everyone just assumes this is going to happen that's going to be a success. I mean, Elon blows up his own rockets just to demonstrate that he's learned something from it. Even getting there is a huge feat, not just for the company, but for society as a whole. If Neutron does successfully launch, it's a huge milestone for Rocket Lab because it's proven now I can carry 10,000 kilograms. That might be a hundred satellites in a single launch, Brett, you can place out there. So if you're a telecom company, you want to beam you know satellite internet for high speed broadband internet with zero latency you can do that now right you don't have to just wait and put them onto electron 300 kilograms at a time

you can spit an entire constellation out there if you're black sky logistics you want to look coordinate logistics for your fleet of vessels that are going and trying to avoid weather patterns and things like that you can do that you know telecom companies imaging companies anybody that might want to do this in a big way now has the opportunity to do so and i think that neutron on the second part of this question is even if it goes successfully and they do have that first launch, there's going to be a lot of champagne bottles that are popped, right? And there's going to be a lot of smiles. There's going to be a lot of cheering. It's going to be a milestone for the company, but it's not like you just get to flip the switch and all of a sudden launch 200

neutron rockets a year, right? This is something that needs to scale up just like Electron scaled up. And Peter and Adam, Adam Spice, the CFO, Peter Beck, the CEO, are going to be very, very calibrated and very, very careful on the launch cadence, especially in those first couple of years. So I'm excited about it. It would be a huge milestone for the company. We're kind of at that a little bit of a waiting period where we wait to see the actual launch date and if it goes successfully and all this stuff. But at the end of the day too, how quickly can you grow this business? And ultimately as investors, this is an investor show, what is that worth to the business and to us as equity owners of that business. Yeah, let's dive into it. I've heard numbers,

and maybe you can correct me if I'm wrong, 50 million per launch or more. I think that's what the Falcon 9 charges. And the Neutron is very comparative to the Falcon 9, which has zero competition today. So this would be kind of the second big competitor out there. But what would they charge here? And how does it relate to their space system segment as well? What's the revenue potential for the Neutron if they get to one, three, five, or even 10 launches per year. Yeah. Great context, Brett. You've definitely done your homework on this. Falcon 9 is a SpaceX vehicle that's medium lift. It would compete more closely with Neutron. And right now, Falcon is charging $67 million for the rocket component of a SpaceX launch. And of course,

they're doing a lot internally for Starlink. Elon's using it for his own purposes rather than going out there and, you know, being for hire as an independent launch provider. But the expectation is that Neutron is going to cost about $55 million per launch, carry 10,000 kilograms. And I think that the first group of customers isn't actually going to be commercial customers. It's actually going to be governments. Because the government now has another option outside of SpaceX to bring large payloads for, you know, sovereign missions, for government missions, that it might want to do out there. We've now got a space defense agency.

You know, we've got a space force out there. These are big contracts that they want to have, if nothing else, a second reliable supplier for. If you've heard about the Golden Dome, that's just kind of a buzzword that people have been chatting about recently, that Trump wants to spend $175 billion between now and the end of his term

for missile-aisled defense, right? Brett, I know that you have a family that's in the military. You know, I have a military family as well. And, you know, when stuff is going on out there, there's a lot of scary stuff going on in the world. You have to have a plan in place to respond to threats that are out there. And so one of the threats that's being identified right now is we need better capabilities for missile, missile defense. Russia is still in a war with Ukraine.

You know, they are launching hypersonic missiles in South Africa, testing them out right now. China has said it's going to modernize its military and its own missiles by the year 2027, potentially foreshadowing something that might happen with Taiwan. The U.S. has to be prepared for these things, not only to detect what's going on, but to respond to them and certainly to intercept any kind of missile that was launched in the country. And it's scary stuff out there. But so the government, you know, through Golden Dome, through Space Force, Space Defense Agency, whatever it might be, has got these massive contracts where they might say, hey, we need to get this into space right now. Like, you've got two days to get this up into space. And by the way, it's going to be a huge constellation of satellites. And there's never really been a good answer other than SpaceX on how to do that.

But Rocket Lab with Neutron and also the responsive space capabilities and the programs it's built out has given them an option to win some of these contracts. And so when you think about, you know, a contract like you throw out numbers, $175 billion, that's not all going to Rocket Lab. But could a billion or $2 billion of that go to Rocket Lab? Absolutely. And a $2 billion contract for a company of this size right now is absolutely huge and game changing. which Neutron could open the door for some future big deals to happen. One more thing on Neutron, they talked about on the conference call, and as you see on the backlog and the numbers, they've said the backlog hasn't really grown in general. And they gave a

good excuse for this. A good reason is that once the testing for the Neutron is successful, then they're hoping to get the contract. So what kind of numbers maybe are you expecting for that? And what sort of backlog growth would be something that you would be satisfied with as an investor? $3, $4, $5 billion or just steady progression as the neutron is ready to roll? And Brett, this is a perfect opportunity, if you don't mind me, to plug the discounted cash flow valuation that I just did here recently for Rock Lab, which is exactly the answers to those types of quantitative questions. Backlog right now is about a billion dollars. That's a future value of all contracts if they were executed in force, contracted just for Rocket Lab. It doesn't mean

a billion dollars next year in revenue. It means if Rocket Lab gets all those contracts, the total value of the contract. I personally am modeling for the backlog to increase, get ready for this, from $1 billion at the end of 2025 to $5.2 billion by the end of 2026. And again, that's going to be a you know part of space force the phase three that they have with that one going on the golden dome the space defense agency some of the stuff they're working on with nasa it's like once neutron shows that it can reliably launch you get an inflection point where all of a sudden rocket labs open for business and this rocket that can carry 10 000 kilograms instead of 300 kilograms is ready for you to give them a call and hire them to launch things into space so i think

we're at an inflection point i think the rocket you know i think that in terms of the backlog we go from $1 billion at the end of this year. If Neutron is successful, $5 billion by the end of 2026, and then up to $10 billion by fiscal 2030. Kind of a step change that you tend to see for a company that hits an inflection point like that. Are you tired of moving money between your bank account and brokerage account? Well, with Interactive Brokers, there's no longer a need to have a separate high-yield cash account. Interactive Brokers offers up to 3.83% interest on instantly available cash. That means if you've got some cash

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And I constantly find myself surprised by just how much they're willing to do for customers that other brokerage platforms are not. If you're interested in checking them out, head on over to ibkr.com, restrictions apply interactive brokers is a member of sipc yeah that's quite the like you said step change and growth there but it makes sense obviously if the if you've got neutron fully operational and they're scaling that up there sounds like there is a ton of demand for it

we talked earlier about the stock performance over the last i guess we could call it e 12 months pretty much. The market cap today is around, I think, just over $20 billion. And if I'm not mistaken, they've kind of been capitalizing on that a bit through raising money and acquiring some companies. So maybe we can go through some of the recent acquisitions. What's sort of the, I guess, overarching strategy here? What types of companies are they acquiring and why does it kind of fit into their story? That's a great question. The first thing that they did really well was they raised $770 million in 2021 at a premium valuation because there was this SPAC craze going on. And Rocket Lab very wisely said, the money's there,

let's take the money, make a really strong balance sheet so we don't have to worry about this for another five years, which they don't really have to. It's almost entirely equity funded. There's not a whole lot of debt, which can cripple you when you're a small company, if you don't do things right. So it gave them the strong foundation and the flexibility to do things like this, which is go out there and make some acquisitions. The other thing is that Rocket Lab, we always kind of think of them as the launch company, right? We talk about Electron, we talk about Neutron.

These are the vehicles that put satellites into space. But still, most companies that are hiring Rocket Lab can't manufacture the satellites themselves. They actually call Rocket Lab and they say, hey, we want you to help us design. This is what we want you to do. We want you to do for us. Can you help us design it?

Can you help us manufacture the satellite itself and all the payloads? and then also launch it up into space. And so they've got another segment called Space Systems, which kind of does a lot of the manufacturing. That's actually a larger part of the business than launch is. And it's going to be an even much, much larger in the future, just because there's so much more work that goes in to building and manufacturing,

designing all the subsystems of a satellite than there is even just launching it, which just kind of gets all the media attention out there. So they did make two acquisitions. One was a company called Mineric, and the other was a company called Geost. Mineric is a German company. They're doing communications between the satellites. And so this is becoming much more important because if you're putting an entire constellation of satellites out there together, they have to communicate in real time, zero latency with one another, make sure they're functioning correctly. There's not just a telephone cord that connects all of them in outer space, right?

You've got a very, very vast expanse between all of these things. They have to be communicating. And so Ineric was a company that was doing a lot of that communication that was necessary for satellites like this. And if you're going to have new trying to launch entire constellations, they're now acquiring one of their subcontractors. They used to go out there and contract to do these kind of things. Now it's one of the buffet of offerings that Rocket Lab has available for its own contracts. And the second is Geost. That's a company that's got a lot of ties to the National Defense Department, the Department of Defense.

They were doing things like sensing of missiles. You know, this is kind of like infrared sensing and things that could not only that would detect suspicious activity. So it's kind of a compliment to the Golden Dome that if Rocket Lab can launch things and do certain things for the components for the satellites, Golden Dome would be a strategic imperative where you have to detect another missile coming towards you that's trying to blow it up. And so they've got a lot of those kind of capabilities with sensing, which presumably is part of a bigger project that they're going to try to go out and get a bigger bid with a contract they're going to bid on for Golden Dome. So that's kind of how the acquisitions fit in. It was $400 million for the two of those. And when you count the cash and the equity and the future earnouts, again, Rocket Lab has that cash on their balance sheet right now.

You had mentioned they've got a shelf offering where they can issue equity at the current market price if they wanted to raise more money. Um, you know, it doesn't seem like they need to a whole lot right now, but they've also got Neutron project. They've got acquisition projects. They've got bids that they want to put together. There's a lot of things you need capital for. It's good to have the flexibility like that. So, and I guess this might dive into your discounted cashflow model a bit, but for sort of a newbie like myself looking at, uh, Rocket Lab, you kind of assume that launch services is going to be the bulk of the business as they roll out Neutron, But it sounds more like it's kind of going to be hand-in-hand growth here between the – how do they categorize the other ones?

Space systems, yeah. Space systems. How do you think these split out in the long run? Is it going to be sort of an equal balance between the two or what are you kind of projecting? So just to put some numbers behind this, right now the total – if you look at the billion dollars of backlog Rocket Lab has right now, about 40% of the backlog is launch, which would be tied to, you know, the Electron and potentially Neutron launches, and then about 60% of space systems. Already two-thirds of the business is space systems.

By the year 2040, which is the window that I look at for DCF, I think it's going to be about 80% space systems and 22% for launch. 78-22 would be the split between the two of those. So you can kind of see that, like, you know, the sticker price, the $55 million, that's a lot of money today for a launch on Neutron. But when you look at a deal for a couple billion dollars to manufacture satellites, it's smaller and smaller in terms of the overall contribution. Gotcha. Yeah. And they work in tandem where if you don't have the launch capabilities, you don't have that advantage in getting that space systems revenue. When I was reading the conference call, they talked about going after other acquisitions.

Is there anything that comes to mind for you as someone who follows the space and defense industry fairly closely of what they could go after, like something like Redwire or I'm trying to forget, but there's a lot that have gone public recently that they could try to go after, especially with taking advantage of their high-priced stock. It's going to look more like bolt-on acquisition spread. Like, you know, when you look at the Mineric one, I mean, that's a, I think that deal was, I mean, look at the specifics just for one moment, or maybe you can pull it up as I'm looking. It was $300 million or something like that in the neighborhood of that. I mean, maybe 300, I'm sorry, Mineric was 75, it was the GEOS, it was 325.

But I mean, like compared to Rocket Lab's equity valuation of $20 billion, this is a tiny component, right? They're not redefining the business with a major acquisition that changes their strategy. They're looking for one specific thing that they bolt on and make the contract deal bigger. And it's immediately accretive. And by the way, they get a really good team who, by the way, if you're mine, Eric, you're Josh right now, you are so thrilled to be working with Peter Beck and Rocket Lab. This is the best case scenario for you. A lot of these companies have struggled to scale, have struggled to get resources, have

struggled to raise capital. Now, all of a sudden, you've got a deep pocketed, large organization that's got a fantastic leader that's very technical on board. It's best case scenario. And I think you're going to see more of those in the next couple of years. I wouldn't be surprised to see $300 million there, $400 million there. Still small in scope compared to how large Rocket Lab is, but there's certainly a reason that they like the technical capabilities of those companies that they're acquiring. Similar to what Tim Cook and Apple was doing. They wouldn't go out there and make game changer acquisitions. They'd find pieces that fit into the bigger company and were very strategic. I see now why you call it an end-to-end space company. And to kind of make the analogy, it feels like if you're wanting to build some sort of a commercial project, you typically go to the architects, you'd have a general contractor, you'd have all these different parts of it. In this case, it seems like Rocket Lab sort of is the architect as well as the general contractor. You might not have specific numbers on it, but do the majority of customers come to them asking for like, we want it all, we need your help designing it too?

Or is it kind of a minority portion of the customers? I'm just kind of curious, like how often do customers come there and say, here's the specific vision we want. you just, we just need you to launch it versus let's hold my hand in this process. Yeah. And that's kind of been the whole way that they designed their own company is, you know, space system was supposed to respond to like someone that would come and say, Hey, we've got a budget. This is what we want to do. We're probably doing something on earth right now that would translate into outer space. Can you help us design the satellite and then also launch it? So there are customers out there like that. Government is like that. Government's going to

say, Hey, I want you to build it, you know, figure out your subcontractors. You need, here's the money, go make it happen. I actually think there's another piece of this too, Ryan, which is what we're getting to now called space applications. For anyone who's familiar with that, they've talked a little bit about it when they went public, but it hasn't really caught on just yet. And it's the whole cloud computing model where you don't want to go build your own data centers. You want to tell Amazon to build your data centers and then you pay them by the month for the storage and the computing that you use. I think it's the same thing that there's going to be kind of the same customers are going to be asking for the same things from RocketLab. And

a lot of these satellites they're designing, bespoke designs today, can be kind of coupled into like, yeah, we can make satellites that are going to provide really high speed internet for you. Or we can provide satellites that are going to make really good imaging for you or video or whatever it is. There's going to be like use cases that are familiar for a lot of customers. And what RocketLab is going to do in that case is rather than go out there and design something for everybody, they're just going to go ahead and build the satellite themselves and say, hey, we're going to let this do exactly what you want it to do, but we're going to take on,

they're going to take this on our own balance sheet and we're going to negotiate out on a per month or per year, just like cloud computing did for you to use them. And that's going to be what space applications is very, very high margin business, right? You look at Amazon web services, Google cloud. I mean, these are like 30% operating margins. These are throwing off, but it takes a long time to get there.

You have to put all the work in upfront of a design and knowing how to get to outer space and how to launch it out of space and then how to design a satellite and all these kinds of things but i think that like that third that third pillar of the company if the first two were launched and then satellite manufacturing the third pillar is just going to be operations uh which is going to be growing in importance you know as we kind of get to the end of the decade coming up here is that what they refer to as the satellite constellation because i know analysts mention it on the conference call and what is it all come back again to the neutron where now they don't really have the quote-unquote supply payload

capacity to match all the demand from their customers and bring that into space and once the neutron comes online they can launch their own satellite systems to build up these space the satellite constellation and then they'll be able to instead of uh what is one of their customers like a black sky technologies instead of black sky technologies going to spacex or what have you they can put everything with rocket lab is that kind of the vision you're looking at and why neutron is so important to this company going forward yep it's starlink the same idea as starlink you know spacex does all the satellite launch all the stuff in the back end they just charge you for the internet every month same same idea based on the application what do you think

about the competitive landscape there i know starlink obviously has a huge head start and there's project kuiper as well as some others i think there's um oh gosh the one web constellation what about the addressable market here and how you know i kind of envision maybe as a potential downside like the the roi could be bad if the a bunch of companies flood into this market and there's not the demand uh out there yeah i think one of the misconceptions from investors right now is that rocket lab is just going to defeat spacex at its own game or that there's going to be no need for for starlink and spacex because now you've got rocket lab out there and that's not true at all, in my opinion. I think that SpaceX is going to be just fine, even with Rocket Lab

building Neutron. And Rocket Lab, in my opinion, is still going to have a minority share of this space industry, however we define that. But it's still going to be big, and it's going to be kind of one of these rising tides that lifts all boats. I think in my estimation, the best information I have right now, Brett, is that there's going to be about 100,000 satellites that are going to launch within the next 10 or 15 years. There's about 20,000-ish that are active right now, and there's another 40,000 that are under review for the FCC, where they basically have to go out there, you have to get spectrum, you have to get the okay from the governing body before you just launch a satellite that's doing stuff out there. 40,000 plus 20,000, 60,000 satellites, you know,

add another 40 on top of that too, we'll probably have at least 100,000 new satellites that go into outer space. And I think 80% of those are going to go to Starlink or are going to go to Amazon or OneWeb or somebody else that's really big that is predominantly using it for their own purposes. They're not going out there and saying, hey, we want you to hire us and call us to launch your satellites. They want to do it for their own stuff, like Elon is. But even if Rocket Lab gets 20,000 satellites placed within the next 15 years, that's a really big deal for this business. and that it's kind of why I'm still excited as an investor because they don't have to go out there and beat SpaceX they're just going to capitalize on this new market that nobody even was doing

anything with before and all of a sudden it's worth billions of dollars all right folks if you are a regular listener to chit chat stocks then you know that we use fiscal.ai formerly known as finchat daily fiscal.ai is our complete stock research terminal it's where we have our investment dashboards it's where we create financial charts it's where I read all the transcripts for conference calls, sell side events, shareholder meetings, and it has Morningstar's high quality reports on more than 1700 companies. It really is the complete research platform for stock focused investors. If you use our link fiscal.ai slash chitchat, you will automatically get two weeks of fiscal pro for free. And if you find that it's worth upgrading, which I think you will,

you'll get 15% off any paid plans with our link. Again, that is fiscal.ai slash chitchat. The link will be in the show notes okay let's go through some of the growth drivers for the business here the potential growth drivers unless brett you have any follow-ups on the constellation okay what do you see simon as the biggest growth driver for rocket lab over the next call it five to ten years is it primarily these big government programs which one of them we mentioned was golden dome or is it just general commercial demand no it's going to be big contracts right like rocket lab when they first started it was the democratizer of the space economy and everybody was excited about you go on the website and actually book a date to launch your own rocket

you know right we can launch ourselves in outer space for five million dollars right now if we want to go on the website i don't suggest that but we could but like that's not where the business is It's going to be Golden Dome spending $175 billion over the next four years. And, you know, what is how many billions of dollars of that can Rocket Lab get? And those are kind of you don't go out there and talk about that a whole lot. You know, it's kind of discussions with the government, you know, the people that need to be in the room for those conversations. But then all of a sudden Rocket Lab announces and says, hey, we just won an $800 million contract. Hey, we just won a $1.2 billion contract.

Hey, we just won a $2 billion contract. The numbers get larger, and that really moves the needle. And then everybody else benefits from the capabilities they're building to serve those large contracts. So now all of a sudden, yeah, you can do a ride share with a large neutron rocket and get to space for a much cheaper price than you could before. I mean, it kind of bleeds down in the commercial market, which continues the train moving higher and faster as it goes along. So I'm going to combine a couple of these follow-ups on growth drivers together because I think it might illustrate or not. and you can tell me if i'm wrong here the their advantage with dealing with the government today the fact that they're one of the only ones that has a regular launch program they already have

and you can explain what this is the haste program as well as contracts with um they mentioned i think on the conference call u.s allies that they're trying to get some contracts with now but with potentially we don't i think most listeners understand what happened in the last year with uh spacex elon musk and the u.s government and the the relationship uh fraying could they step in as maybe the second big player here the only other reliable launcher get a ton of these contracts and kind of be in that pole position when no one else not even blue origin at this point or anyone else can gain these uh do what the government wants i mean we've got to ruffle some feathers here you know brett and talk about elon and how like the government how

how much the government hates when he goes on Joe Rogan and smokes marijuana on the show when they specifically write in the contract, you cannot have drug usage for anybody employed for any contract that's, you know, I mean, stuff like that drives them nuts. When Elon goes out there and posts on Twitter, he's thinking about decommissioning the Falcon spacecraft. The government's going like, wait, what, what are we going to do? If we can't, if you're decommissioning,

because you're fighting with Trump, I mean, stuff like that when you need a reliable launch partner is like death by a thousand paper cuts, right? You have to have reliability with the people you're working with. And like everyone knows Elon's brilliant and that SpaceX is far ahead of anyone else in the space race right now. But like even just qualifying Rocket Lab in for something you had no other option for before, that's huge. Right. And then if Elon does something stupid or you just get tired of working with SpaceX for whatever reason, you have another option where you had zero option before. I mean, I think that stuff like that, you know, it's more subjective.

You know, it's not like for the most part, companies don't want to just say, OK, well, we're shutting down our business because we don't like Elon and what he's saying on Twitter right now. But it does really help a company like Rocket Lab to be there. If you get the phone call and say, hey, something happened, you know, we want to give you this contract. Can you can you supply it? And they'd say yes. What is the Haste program that Rocket Lab's winning contracts for and what's the potential there? HASTE is a responsive space program focused on hypersonic missiles. So it's a modified electron and carry a larger payload. But it needs to be like, you know, it used to be you would book a couple of months out.

You would give Rocket Lab plenty of time to, you know, prepare, have a rocket ready, you know, get all the components ready. So you could do a launch maybe four or five or six months in advance. HASTE is the government calls you and says, hey, you got a week. Can you get this up in outer space for us? people scramble, stuff happens, and Rocket Lab has shown, credibly, a reliable ability to do this, which is really good for the government because the government doesn't always have, hey, something happened, something's going on out there, we see a threat, we need to launch this, you know, we're going to wait six months to do it. It's got to happen quickly. And so Haste was

the program, not just a rocket that was developed that was modified from Electron, but a program to be responsive in nature. Let's jump to the financials, unless there's any other government or I guess growth drivers that we didn't touch on, Simon? Or is there, we kind of hit the big ones? Yeah, no, I think that's it. I mean, the other thing worth mentioning is there's economies of scale in this business that like we shouldn't look at the gross margins

and the operating margins of today and assume that that's going to look like that five years in the future, because you get better, the prices of satellites come down, there's reusability of certain components. I mean, the gross and the operating margins of rocket lab are going to increase quite significantly well let's let's jump right to

it then what do you see this sounds like just a very capital intensive business which i'm sure it is i mean they are launching rockets it's hard to do it's expensive how do you see the economics shaking out in the long run what do the gross margins look like and then maybe if we could trickle down even further. How do you expect operating expenses to scale as well? Yeah, maybe to frame it this way, I think the most important line item for us as investors is free cash flow. There's so much going on in the middle there when you talk about the efficiencies and the headcount and the growth and the margins and all that stuff. But at the end of the day, it's like, at what point is Rocket Lab going to actually be generating cash

in excess of the capital expenditures it has to pay for, in excess of the acquisitions it's making, in excess of the R&D that's required to get Neutron even launched. I think that's probably going to happen somewhere between 2027 and 2028. But then again, you're going to see an inflection point. It's not going to look like this. It's not going to look like Target or Chipotle or this linear growth. It's going to go like this, where all of a sudden, you mentioned earlier, Brett, 135 for the Neutron launch cadence.

I mean, five launches versus one launch in two years, even just doing that is a huge deal. Five launches, $55 million. I mean, that's $260, $270 million that comes in from something you put the upfront work in developing and the CapEx and the R&D and all that kind of stuff. So we're going to see a lot of scalability. And then the free cash flow, I think, is going to hit over $1 billion by 2030. And I think it's going to scale up pretty significantly from there. But again, the reason that Wall Street typically shies away from doing DCFs on companies like this is there's so much uncertainty.

You can't go out there and say, hey, guess what? I know exactly how many contracts Rocket Lab is going to win between now and the year 2040. You've got to make some assumptions based on what they've told us in the conference calls and what you know about. I follow the company for almost five years now, but it's still a wide variance in outcomes, depending on how things actually play out. Let's go through the, well, you went through some of the details of the DCF. What price target did you come to from the DCF? And this is a listener question i wanted to include previously on the show i believe you said you're um and this would have been in september of last year the price target on rocket lab was 24 we've cleared

that so i think listeners would find it useful to see how you manage positions that do well like this do you trim do you just keep holding do you kind of put into a never sell category um so the updated DCF plus, you know, portfolio management. Yeah, that's right. And, you know, it kind of started last March, March, 2024, when the stock was selling for $4 a share. And for those who followed any of my commentary on Twitter at 7investing, you know, I was pounding the table and saying, this is a mispriced stock out there. I think it's worth $22 a share. It's selling for $4. I can be a little off, whether it's worth 22 or 23 or 20, you know, or 19, if it's selling at $4 and there's that much of a delta and I've done my homework correctly, there's a lot of

opportunity for investors to benefit from that. And so we talked about it for the next year and a half. We've got our seven investing forum. It was a multiple best buy, multiple recommendation on our own scorecard. And now the stock is selling for, what is it at this point? $43 a share. I mean, it's a 10X in a year and a half. And now the question is, is it going to 10X again in the next year and a half? Probably not. But if we look at just kind of objectively the assumptions built in to the price today, and then kind of, you know, this trajectory that we think about winning contracts and scaling up Neutron, getting space applications going, you know, whatever else it is, the efficiency of the business, what is the price that I feel good about paying for the shares today?

Keeping in mind, I want that to be conservative, right? Because I'd rather be wrong and there'd be upside than go out with too high of a price target and be wrong. And then there's downside and people lose money off of it. But I kind of re-challenged a lot of those same assumptions at $22 a share and saw, you know, where are we at today? And I kind of framed the DCF that I did. Would you like me to kind of talk about the price target and then we can kind of work backwards from there? 100%. Go through the details as much as you'd like. So the price target that I came up with, which again is a conservative number because I wanted to feel good about this. The price that I would recommend buying shares at is $27 a share for

Rocket Lab. And that's about, you know, $5 per share higher than when I last looked at this last summer I said it was worth $22. And I think that we've seen some gains. We've seen some bigger contracts that they've not only signed, but have the potential to sign. I've increased the launch cadence that I have for Neutron. I think that Electron has kind of hit a steady state. It's still growing, but I don't think there's going to be that many companies that really want to launch on the smaller rocket. They want to go after the bigger rocket and that's going to move the needle. And then just kind of some of the stuff in the middle of the DCF, you know, regarding to do efficiency and headcount and stuff like that. But again, I don't want to make this sound

like, you know, the stock is a sell at $44. It could be that I'm just being way too conservative in my own assumptions, but I feel like I would feel really good about going out and buying a lot more shares if we see the price at around 27 bucks. When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere and two out of three women rocked the rachel while those things stayed in the 90s one thing that hasn't is that fuzzy feeling you get when west jet welcomes you on board here's to west jetting since 96 travel back in time with us and actually travel with us at westjet.com slash 30 years right we're kind of in that limbo period where you bought before

it's been a huge winner you don't want to take the tax hit you still see long-term potential but right now would you add to your position no um i think that that's quite reasonable um sorry that was just falling up here i don't have a question i think ryan has maybe the final one for you for you simon sure let's just uh go that's 10 years out we wake up in 2035 what do you envision rocket labs business looking like maybe both in terms of like the operations? How many rockets are they launching kind of thing, but also financially, what do you think they could look like 10 years from now? I think the biggest first question is how many companies want to hire them to launch Neutron? Realistically, how many companies or government

agencies can afford $55 million to launch 100 satellites at a time for a full constellation, right? And I think that this is kind of the one where there's a lot of disagreement with equity analysts that are issuing price targets. I just saw Citigroup came out and said that Rocket Lab was worth $50 a share because they were going to be launching 20 neutron launches by the year 2028. And to me, that just kind of sounds,

that sounds a little too aggressive in my opinion. I think that, you know, you're going to want a slower initial growth, but then once you can reliably show this is as reliable as Electron was, then yeah, then we can ramp it up from there. But I think that the first question is how many contracts do you sign

and how quickly do they come in for Neutron? Knowing that we used to be getting, you know, $7 or $8 million a launch from Electron. Now you're getting $55 million a launch from Neutron and you're also building all of the components that are going in. I mean, that's the game changer. That's the hockey stick for the business,

the point of inflection, if you will. The second we mentioned already, just to reiterate the space applications, the constellation as we're calling it now, How big does that get? I have that modeled right now. Ryan is contributing $3.2 billion by the year 2040. Could be an order of magnitude larger than that. If we see this catching on, everybody wants to do this, and all of a sudden it's really doing well, I don't think anyone's really even accounting for it right now. But to say that's worth a $30 billion business, I mean, that would move the needle for the stock price right now. And then also, you know, how many acquisitions does Rocket Lab make, right? Like right now, they've been kind of these bolt-on acquisitions. There's teams out there that are available.

What if they start poaching SpaceX's talent and saying, you know, people start coming to them and saying, I don't want to work with Elon anymore. He's driving me crazy. Can I work with you instead? And I want to build an entire new division that's doing this that you were not doing before. What could that be worth to this kind of company, knowing that SpaceX right now is doing $15 billion of revenue a year?

and that's larger than I expect Rocket Lab to be 10 years from now. Something like that could really move the needle. And so a lot of uncertainties there. I don't have very clear answers because my crystal ball is a little bit foggy on the question, but you can kind of see the sources of upside. Again, I prefer to be conservative because I could very easily make a case that Rocket Lab is worth $100 a share today if we wanted to bake in all of those expectations. It's just kind of how comfortable are you investing? Do you want to invest on a conservative note or a more aggressive note, there's certainly a case to be made for either one of those. Right. And for context, SpaceX at probably pushing $20 billion in revenue here

shortly with no signs of slowing down. So the market opportunity is huge. Before we get out of here, I want to sneak in one other question. They haven't talked about it much recently, but what are your thoughts on the upcoming, I'm no expert on these, but the moon and Mars missions, either unmanned or manned coming within the next couple of maybe 10 to 15 years some people are really excited about that brett i mean like the nerd in me that loves space stuff i'm from houston nasa's in my backyard and so like these missions like going to mars or like exploring venus like they're pretty exciting like i just i just think that the bigger picture like that's something to be excited about and follow along with in terms of revenue contributors they're not really big

you know the nasa budget with rocket lab has always been kind of small certainly compared to the government, the defense spending budget is several orders of magnitude more than what NASA would spend. So I'm not really moving the needle, but I mean, they're just part of me that likes following along with it. I think they're really cool. Gotcha. Yeah. It is stuff that you can put in a press release that does sound exciting, but wait, maybe the Department of Defense is going to have a moon and Mars space at some point. That's where the real money is going to come in. All right. Not to derail it, let's bring it back. And before we hit our disclosure, Simon, tell the listeners a quick pitch on what 7investing is and where they can go find more information.

Yeah, man. First of all, thanks for having me again on the show. You guys have been with me this whole journey. 7investing was launched in 2020 and over the last five years. We've chatted several times about a whole lot of companies and just always appreciative and really a fan of you guys' podcast here. My business is making stock recommendations every month and then also identifying the five best buys that I have in the market. And sometimes it's really fun and, you know, sexy companies like Rocket Lab and other times it's boring companies that are making plastic shoes that I think are extremely undervalued right now. And, you know, all points in between, you know, it's just kind of what are the best opportunities. I hold myself very accountable for the scorecard and transparent scorecard.

And we have all of it at 7investing.com. If you go to 7investing.com slash subscribe and sign up, you get a full seven days to check out everything we offer with absolutely no cost. So hopefully you get a chance to kind of take a test drive and see the subscriber calls and see the best buys and the new recommendations and everything that's under the hood of what we're offering out there. All right. That's a wonderful elevator pitch. Before we get out of here, let's hit the disclosure.

We are not financial advisors. Anything that we say on this show is not formal advice or recommendation. Ryan, I, or any podcast guest 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 for tuning in once again, and we'll see you next time. I'll see you next time.