AI and defense demand are remaking the space economy

The space economy is experiencing a kind of growth in 2025 that looks nothing like the speculative frenzy of 2021 — and that’s exactly why it matters.

The data from Space Capital’s latest Space Investment Quarterly, which has been tracking private market investment in the space economy since 2012, reveals a market that has fundamentally matured. With another $5.8 billion invested across 115 companies in Q3, this year has already surpassed 2024 in overall investment and is on track to rank among the top three funding years on record.

Perhaps more importantly, the $49 billion invested over the trailing 12 months represents a decisive shift in where capital is flowing. Instead of a return to the SPAC-era boom, the space economy is experiencing sustainable growth driven by defense demand, artificial intelligence breakthroughs, and genuine commercial traction.

The center of gravity has shifted from speculative narratives to funded, dual-use capability, and investors are backing companies with customers, contracts, and clear profitability paths.

The most significant trend reshaping the space investment landscape is the pivot toward national security applications.

The White House has signaled a clear shift away from civil space priorities while leaning aggressively into defense, and the numbers bear this out. The Space Force could see its budget reach $40 billion in fiscal year 2026 — a staggering 40% year-over-year increase — driven by the urgent need for advanced platforms and resilient space architectures.

This policy backdrop has turbocharged investment in Golden Dome solutions, from satellite manufacturing to defense-centric capabilities designed to enhance tracking, resilience, and space domain awareness.

Space infrastructure investment reached a five-quarter high of $4.4 billion in Q3, fueled by a breakout year in US satellite manufacturing and record activity in the Chinese launch sector.

Notably, venture capital firms drove 86% of investment activity in Q3, demonstrating that this isn’t just government contracting; it’s a durable dual-use market blending commercial and defense demand.

While defense spending dominates headlines, the integration of artificial intelligence with space-based data is quietly revolutionizing the applications layer of the space economy.

Geospatial intelligence (GEOINT) investment has surged from $1 billion in 2020 to a record $21.6 billion as of Q3 2025, and Google’s (GOOG, GOOGL) launch of AlphaEarth Foundations (AEF) in the quarter marked a watershed moment.

Big Tech’s race to develop “World Models” — AI systems that understand and navigate physical space — depends fundamentally on petabytes of satellite, aerial, and camera data. AEF represents a critical architectural shift from “pixels to embeddings,” replacing brittle, bespoke models with a queryable representation of Earth itself.

This validates and accelerates the geospatial AI category. The value chain is now re-forming around these intelligent representations, strengthening the investment thesis for companies building specialized applications and proprietary data layers.

For investors, this means the opportunity has expanded from a handful of satellite imaging companies to an entire ecosystem of AI-enabled applications across agriculture, insurance, logistics, climate, and national security.

SpaceX’s (SPAX.PVT) 10th Starship test in August represented another major technical milestone: full flight profile execution, booster soft splashdown, payload deployment, in-space Raptor relight, and controlled upper-stage reentry.

While big challenges remain (propellant transfer, docking tests, and commercial payloads all depend on the 2026+ Block-3 vehicle), the trajectory is unmistakably positive.

Perhaps even more consequential was SpaceX’s $17 billion deal to acquire EchoStar’s (SATS) spectrum assets, positioning Starlink as a global space-based cell layer rather than a carrier partner. If approved, it could redefine the direct-to-cell market and make SpaceX a fully fledged mobile network competitor.

This matters because it demonstrates how the space economy increasingly intersects with terrestrial infrastructure, and it’s the kind of market-expanding move that creates trillion-dollar opportunities.

Meanwhile, Jeff Bezos’s space ambitions are finally awakening at scale. Amazon’s (AMZN) Project Kuiper has crossed from demo to early deployment, with 129 satellites now in orbit and initial US service expected within six months.

JetBlue’s (JBLU) selection of Kuiper for in-flight Wi-Fi is a telling proof point: Airlines now have a credible alternative to Starlink, and legacy providers face renewed pressure.

Our updated assessment of Blue Origin, which is based on headcount, product maturation, and contracting activity, suggests approximately $25 billion in cumulative founder investment, which peaked around $5 billion in 2024 and has eased as initial operating revenue arrives and new leadership drives efficiency.

The second launch of Blue Origin’s New Glenn rocket slipped past Q3, a schedule wobble that matters for certifications and customer confidence. Until Blue Origin is flying regularly and sticking landings, its growth story remains “promising” versus “proven.” But with lunar partnerships expanding and a maturing organization, Blue Origin is positioning itself as a genuine SpaceX alternative, something the market is hungry for.

Investors realized $33 billion across 29 exits in Q3, including three IPOs and 26 acquisitions, making 2025 the second-highest year on record for infrastructure exit value.

The IPO window is reopening, but scale now beats story. Firefly Aerospace (FLY) was priced at around 62 times trailing revenue, Axelspace (402A.T) at 15 times, and Via Transportation (VIA) at nine times.

Post-IPO results have split sharply: Rocket Lab (RKLB) and Planet (PL) delivered record revenue and margins, while Firefly faced pressure due to limited revenue, losses, and a booster failure.

The market has rewarded repeatable performance and derisked roadmaps, not hype.

M&A remains the dominant exit path, with a median valuation step-up of around 2.1x, which is below the 2021 peak but reflects healthier discipline. Consolidation is accelerating across digital payloads, routing, and optical systems as acquirers opt for proven capabilities and integration value over speculative potential.

Since 2009, the space economy has evolved into a mature, multilayered ecosystem with $393 billion invested across 2,286 companies. The era of relying solely on funding potential is over, and capital is flowing to companies with proven programs, spectrum assets, or other defensible moats.

In low-Earth-orbit-enabled broadband, expect real competition and pricing pressure as Kuiper scales and Starlink expands direct-to-cell capabilities.

In applications, winners will be those embedding AI into enterprise workflows and mission systems, not just producing prettier maps. GEOINT already represents 86% of 2025 funding in this layer. Exits will center on consolidation and selective IPOs that reward operating cadence over hype.

As Starship redefines infrastructure and AI accelerates integration across industries, the space economy is entering an era of sustainable, defensible growth built on real demand and disciplined execution. That’s the foundation for the next decade of returns.

Chad Anderson is the founder and CEO of Space Capital, where he has been pioneering investment in the space economy for over a decade. He is an investor in SpaceX, along with dozens of other space companies, and is the author of “The Space Economy,” published by Wiley.

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The space economy is experiencing a kind of growth in 2025 that looks nothing like the speculative frenzy of 2021 — and that’s exactly why it matters.

The data from Space Capital’s latest Space Investment Quarterly, which has been tracking private market investment in the space economy since 2012, reveals a market that has fundamentally matured. With another $5.8 billion invested across 115 companies in Q3, this year has already surpassed 2024 in overall investment and is on track to rank among the top three funding years on record.

Perhaps more importantly, the $49 billion invested over the trailing 12 months represents a decisive shift in where capital is flowing. Instead of a return to the SPAC-era boom, the space economy is experiencing sustainable growth driven by defense demand, artificial intelligence breakthroughs, and genuine commercial traction.

The center of gravity has shifted from speculative narratives to funded, dual-use capability, and investors are backing companies with customers, contracts, and clear profitability paths.

The most significant trend reshaping the space investment landscape is the pivot toward national security applications.

The White House has signaled a clear shift away from civil space priorities while leaning aggressively into defense, and the numbers bear this out. The Space Force could see its budget reach $40 billion in fiscal year 2026 — a staggering 40% year-over-year increase — driven by the urgent need for advanced platforms and resilient space architectures.

This policy backdrop has turbocharged investment in Golden Dome solutions, from satellite manufacturing to defense-centric capabilities designed to enhance tracking, resilience, and space domain awareness.

Space infrastructure investment reached a five-quarter high of $4.4 billion in Q3, fueled by a breakout year in US satellite manufacturing and record activity in the Chinese launch sector.

Notably, venture capital firms drove 86% of investment activity in Q3, demonstrating that this isn’t just government contracting; it’s a durable dual-use market blending commercial and defense demand.

While defense spending dominates headlines, the integration of artificial intelligence with space-based data is quietly revolutionizing the applications layer of the space economy.

Geospatial intelligence (GEOINT) investment has surged from $1 billion in 2020 to a record $21.6 billion as of Q3 2025, and Google’s (GOOG, GOOGL) launch of AlphaEarth Foundations (AEF) in the quarter marked a watershed moment.

Big Tech’s race to develop “World Models” — AI systems that understand and navigate physical space — depends fundamentally on petabytes of satellite, aerial, and camera data. AEF represents a critical architectural shift from “pixels to embeddings,” replacing brittle, bespoke models with a queryable representation of Earth itself.

This validates and accelerates the geospatial AI category. The value chain is now re-forming around these intelligent representations, strengthening the investment thesis for companies building specialized applications and proprietary data layers.

For investors, this means the opportunity has expanded from a handful of satellite imaging companies to an entire ecosystem of AI-enabled applications across agriculture, insurance, logistics, climate, and national security.

SpaceX’s (SPAX.PVT) 10th Starship test in August represented another major technical milestone: full flight profile execution, booster soft splashdown, payload deployment, in-space Raptor relight, and controlled upper-stage reentry.

While big challenges remain (propellant transfer, docking tests, and commercial payloads all depend on the 2026+ Block-3 vehicle), the trajectory is unmistakably positive.

Perhaps even more consequential was SpaceX’s $17 billion deal to acquire EchoStar’s (SATS) spectrum assets, positioning Starlink as a global space-based cell layer rather than a carrier partner. If approved, it could redefine the direct-to-cell market and make SpaceX a fully fledged mobile network competitor.

This matters because it demonstrates how the space economy increasingly intersects with terrestrial infrastructure, and it’s the kind of market-expanding move that creates trillion-dollar opportunities.

Meanwhile, Jeff Bezos’s space ambitions are finally awakening at scale. Amazon’s (AMZN) Project Kuiper has crossed from demo to early deployment, with 129 satellites now in orbit and initial US service expected within six months.

JetBlue’s (JBLU) selection of Kuiper for in-flight Wi-Fi is a telling proof point: Airlines now have a credible alternative to Starlink, and legacy providers face renewed pressure.

Our updated assessment of Blue Origin, which is based on headcount, product maturation, and contracting activity, suggests approximately $25 billion in cumulative founder investment, which peaked around $5 billion in 2024 and has eased as initial operating revenue arrives and new leadership drives efficiency.

The second launch of Blue Origin’s New Glenn rocket slipped past Q3, a schedule wobble that matters for certifications and customer confidence. Until Blue Origin is flying regularly and sticking landings, its growth story remains “promising” versus “proven.” But with lunar partnerships expanding and a maturing organization, Blue Origin is positioning itself as a genuine SpaceX alternative, something the market is hungry for.

Investors realized $33 billion across 29 exits in Q3, including three IPOs and 26 acquisitions, making 2025 the second-highest year on record for infrastructure exit value.

The IPO window is reopening, but scale now beats story. Firefly Aerospace (FLY) was priced at around 62 times trailing revenue, Axelspace (402A.T) at 15 times, and Via Transportation (VIA) at nine times.

Post-IPO results have split sharply: Rocket Lab (RKLB) and Planet (PL) delivered record revenue and margins, while Firefly faced pressure due to limited revenue, losses, and a booster failure.

The market has rewarded repeatable performance and derisked roadmaps, not hype.

M&A remains the dominant exit path, with a median valuation step-up of around 2.1x, which is below the 2021 peak but reflects healthier discipline. Consolidation is accelerating across digital payloads, routing, and optical systems as acquirers opt for proven capabilities and integration value over speculative potential.

Since 2009, the space economy has evolved into a mature, multilayered ecosystem with $393 billion invested across 2,286 companies. The era of relying solely on funding potential is over, and capital is flowing to companies with proven programs, spectrum assets, or other defensible moats.

In low-Earth-orbit-enabled broadband, expect real competition and pricing pressure as Kuiper scales and Starlink expands direct-to-cell capabilities.

In applications, winners will be those embedding AI into enterprise workflows and mission systems, not just producing prettier maps. GEOINT already represents 86% of 2025 funding in this layer. Exits will center on consolidation and selective IPOs that reward operating cadence over hype.

As Starship redefines infrastructure and AI accelerates integration across industries, the space economy is entering an era of sustainable, defensible growth built on real demand and disciplined execution. That’s the foundation for the next decade of returns.

Chad Anderson is the founder and CEO of Space Capital, where he has been pioneering investment in the space economy for over a decade. He is an investor in SpaceX, along with dozens of other space companies, and is the author of “The Space Economy,” published by Wiley.

Click here for the latest technology news that will impact the stock market

Read the latest financial and business news from Yahoo Finance