Rocket Lab's Defense Contract and Record Launch Underscore Growth, Yet Valuation and Execution Risks Remain Acute

What happened

Rocket Lab capped a record year by successfully launching its 21st Electron rocket, deploying a satellite for iQPS, and securing an $816 million defense contract. This operational momentum aligns with the company's strategic push into defense space systems, as noted in recent filings with a $1.10 billion backlog. However, the stock trades at a ~$28 billion market cap, over 50 times trailing sales, despite persistent net losses and negative free cash flow. Critical risks from the DeepValue report include Neutron's delay to mid-2026 and reliance on equity issuance, which have already diluted shareholders. While this news highlights growth potential, it does not address the fundamental overvaluation or path to profitability that underpins the strong sell thesis.

Implication

The $816 million defense contract adds to Rocket Lab's backlog, enhancing revenue visibility and supporting its vertical integration strategy in defense space. However, investors must recognize that the company remains unprofitable with negative interest coverage and ongoing equity dilution, as detailed in Q3 2025 filings. The stock's ~137% gain over the past year reflects speculative optimism rather than sustainable fundamentals, leaving it vulnerable to sentiment shifts if Neutron faces further delays or cost overruns. Long-term value creation hinges on achieving positive free cash flow and successful Neutron commercialization by 2026, which are high-risk endeavors in a competitive market. Consequently, while operational successes are positive, they do not justify current multiples or alter the need for cautious, fundamentals-driven investment.

Thesis delta

The new defense contract and record launch do not materially shift the investment thesis; Rocket Lab remains overvalued with persistent losses and reliance on future Neutron success. While these developments reinforce growth narratives, they do not mitigate core risks such as cash burn, dilution, or competitive pressures. The strong sell stance is unchanged, as the stock's price still discounts flawless execution without addressing current financial weaknesses.