Rocket Lab’s revenue surge and defense wins validate growth but valuation still assumes perfection

What happened

Rocket Lab reported record Q3 revenue of $155m, up ~48% year-over-year, added 17 Electron launch contracts to backlog and guides Q4 revenue of $170–180m with 37–39% GAAP gross margin. The company is expanding its defense footprint via back‑to‑back HASTE hypersonic missions and the GEOST acquisition, which alongside a $1.07bn backlog gives multi‑year revenue visibility and supports management’s “second space prime” narrative. Operational metrics show improving unit economics — a record 37% GAAP gross margin and recent positive free‑cash‑flow quarters — and liquidity exceeds $1bn after an at‑the‑market program, providing runway for Neutron development and M&A. Yet the equity is priced for perfection: a roughly $20.8bn market cap on ~$436m of 2024 revenue, persistent annual negative FCF, GAAP losses and extreme multiples (P/B ~17x, EV/EBITDA deeply negative) leave little margin for error. Material execution risks remain — Neutron schedule and Archimedes engine tests, launch reliability, and conversion of defense awards into profitable, repeatable programs — so any slips, launch anomalies, or contract setbacks could trigger sharp de‑rating or dilution.

Implication

In the near term, stronger revenue and defense wins modestly reduce the probability of immediate failure and justify keeping exposure for investors willing to bear binary technical risk. However, the stock already discounts near‑perfect Neutron execution, rapid margin expansion, and minimal dilution — outcomes that remain contingent on on‑time engine and structural tests and clean launch operations. If management hits Q4 guidance, converts backlog into cash and sustains quarterly positive FCF, the valuation can be defended incrementally; absent that, the path leads to dilution or a sharp multiple contraction. Active investors should monitor Neutron milestones, quarterly FCF and cash runway, launch success rates, and the conversion of defense awards as the critical re‑rating triggers. For most investors the prudent course is to trim or hedge positions now and re‑enter only after clear, repeatable signs of profitability and Neutron de‑risking emerge.

Thesis delta

The Seeking Alpha piece confirms the DeepValue view that top‑line growth and defense expansion are real and material to the story, modestly improving short‑term operational credibility. It does not, however, alleviate the core concerns about extreme valuation, multi‑year negative free cash flow history, and binary Neutron execution risk, so our stance (Potential Sell / trim existing positions) remains unchanged.