Blue Origin Backlash: Space Tourism Industry Faces Reality Check

Space Industry Halted by Blue Origin Explosion

A weeks-long rally in space-related stocks came to an abrupt halt on Friday, with the explosion of a Blue Origin rocket serving as a glaring reminder of the risks that come with the potential riches investors hope to reap from the blossoming industry. The Jeff Bezos-backed firm's New Glenn rocket blew up Thursday evening while undergoing a test on a Florida launchpad, ahead of plans for it to deploy satellites for Amazon.com Inc.'s Leo, a rival network to SpaceX's Starlink.

The explosion dealt a major setback to Blue Origin's efforts, and will likely lead to delays. It also raises questions around a platform that was among companies selected just this week by NASA to help jumpstart its lunar base program. For investors, the development punctured the hype that has built up around the sector lately, denting enthusiasm that has grown particularly strong in the leadup to SpaceX's highly anticipated initial public offering later this year.

Blue Origin is also in contract to place communications satellites for AST SpaceMobile Inc., a recent hot stock that tumbled Friday on the news. AST SpaceMobile, which had surged 83% this year through Thursday, plunged 15% on Friday, while space infrastructure company Redwire Corp. dropped 5.1%. Space launch provider Rocket Lab Corp. fell 3%, and aerospace and defense manufacturer Karman Holdings Inc. declined 13%.

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The explosion could jeopardize AST SpaceMobile's satellite deployment timeline, according to Bloomberg Intelligence analyst John Butler, noting that New Glenn is likely to get grounded for an investigation to figure out the cause of the incident. "A similar mishap with SpaceX's Starship led to a nearly two-month delay in its scheduled flights last year," Butler wrote in a note.

Deutsche Bank analyst Bryan Kraft cut the recommendation on AST SpaceMobile to hold from buy, saying that the incident will cause a meaningful delay in Blue Origin's launch timeline, and that without Blue Origin, AST SpaceMobile will not be able to meet its launch target for 2026. Eric Diton, president and managing director at The Wealth Alliance, notes these space-related shares are momentum stocks with very high valuations based on future earnings — and are prone to big swings, especially when the timeline for the potential payoff is pushed back.

"When a setback like this happens, which could extend the timeline on future launches, and thus extend the timeline on future profitability, many momentum investors will sell first and then ask questions later," Diton said.

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