Space: a strategic role for the defense sector?
What strategic role does the defense sector play in the growth of the space industry?
Historically, military spending has often financed the emergence of new technologies, whose development can be long and costly, sometimes too much so for private players acting on their own funds. These technologies include sensors, components, advanced materials and systems, which are first used for military applications, then for civilian ones. Examples include GPS, radar and digital photography, which was initially developed to transfer images taken by military surveillance satellites to earth.
Military spending is also supporting the rise of new players who are diversifying potential suppliers to the armed forces, limiting the risk of concentration and improving the resilience of supply chains. Private companies such as SpaceX and Rocket Lab benefited from this at the start-up stage, and still count governments as their main customers.
Finally, the conflict in Ukraine has demonstrated the strategic importance of the space sector, notably through the major role played by commercial players in satellite geo-positioning, telecommunications and remote sensing. Access to space, its surveillance and protection, are therefore seen as issues of national sovereignty, which explains public support for the space ecosystem.
Why is it crucial for our Echiquier Space fund to be exposed to this?
Military spending on space defense is one of the 3 structural growth drivers of the fund’s ecosystem. Following the outbreak of war in Ukraine, European governments realized that they had to increase the proportion of their budget devoted to defense, aiming for 2% of GDP and soon perhaps 2.5% to 3.0% of GDP or even more.
This sector is therefore accelerating rapidly, and one of the main beneficiaries of these investments is space defense, whose estimated growth was strong in 2023 (at +18%, according to the Space Foundation) and accelerated in 2024 (+24% according to NovaSpace). The total potential market for space defense could reach $250 billion by 2035, bearing in mind that this estimate was made before the announcement of recent rearmament plans in Europe.
Beyond this growth potential, it is crucial to be able to and to be exposed to defense, as most players in the space ecosystem have both civil and military activities, so the investment universe is broader than it would be if military activities were excluded. What’s more, this dual use of technologies improves the return on investment for the private companies developing these innovations, having more customers and orders as a result.