Is Rocket Lab (RKLB)’s Record Space Force Deal the Turning Point for Defense Investors?

Growing geopolitical tensions are driving a global arms race. Global military spending reached a record $2.9 trillion in 2025, a 2.9% increase from the previous year. The space economy has also grown, reaching $613 billion in 2024, with the World Economic Forum and McKinsey projecting it to surpass $1.8 trillion by 2035. This surge in global defense and space spending presents lucrative business opportunities for companies in these sectors.

Rocket Lab Corporation (NASDAQ:RKLB), with its expanding portfolio and programs, is well-positioned to capitalize on these opportunities. A significant contract with the U.S. Space Force highlights Rocket Lab's expanding role in national security space missions. The company has secured a $266 million contract to provide around a dozen suborbital launches, with an option for additional launches.

This represents Rocket Lab's largest launch contract ever, with the first launch expected by the end of 2026. The award also confirms the company's growing relationship with U.S. defense customers. Earlier this year, the Pentagon awarded Rocket Lab a $190 million contract to support hypersonic flight testing. Rocket Lab is also collaborating with Rtx Corp on the proposed Golden Dome missile defense initiative.

Initially focused on launch services, Rocket Lab has transformed its business to become a broader space systems provider, offering spacecraft, payloads, and satellite components, as well as mission operations support. By expanding its capabilities through a planned acquisition of Iridium Communications, Rocket Lab aims to capture a larger share of each customer program.

Investor sentiment towards Rocket Lab has been mixed. The number of hedge funds holding Rocket Lab shares slightly decreased in the first quarter, from 45 to 43, but was offset by several funds significantly increasing their positions. Notable increases include Marshall Wace raising its stake by 1,213% to $120.8 million, Entropy Technologies increasing its position by 317% to $14.8 million, and Tudor Investment Corp adding Rocket Lab to its portfolio during Q1.

Despite the bullish outlook, there are risks to consider. These include government funding uncertainty due to defense budget politics and intensifying competition. Additionally, the acquisition of Iridium Communications introduces execution risks. While Rocket Lab's record Space Force contract and expanding portfolio position it well to capture a growing share of defense and space spending, investors should also consider these risks.

The article suggests that while Rocket Lab offers potential, certain AI stocks may offer greater upside potential and carry less downside risk.