Why Rocket Lab, Planet Labs, and AST SpaceMobile Stocks Keep Falling

Are space stocks just momentum stocks? It kind of felt that way in 2024, as shares of Rocket Lab (NASDAQ: RKLB) and AST SpaceMobile (NASDAQ: ASTS) both roughly quadrupled, and Planet Labs (NYSE: PL) nearly doubled. As the calendar flips to 2025, however, the momentum seems to be fading -- and not even positive headlines can keep it up.

Arguably good news for AST SpaceMobile, a satellite communications company, didn't help the stock much on Monday, and by Tuesday, the stock was headed lower once again. AST shares are down another 5.2% through 11:11 a.m. ET Wednesday. Planet Labs stock, which builds Earth observation satellites, is likewise suffering its second straight down day, losing 3.9%.

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And Rocket Lab itself is the most curious case of all. Yesterday, Rocket Lab was picked to help out Kratos Defense on a new defense contract to research hypersonic rockets, and today, investment bank Stifel raised its price target on Rocket Lab stock to $31 -- but Rocket Lab stock is down 6.4%.

When good news isn't good enough

What's ailing all of these space stocks? Perversely, I think "gravity" is part of the problem -- the old adage that what goes up must come eventually come back down. Strong stock price gains in space stocks in 2024 may have caused these stocks to get a bit ahead of themselves, a bit overvalued, such that investors' natural reaction in 2025 might be to sell the stocks and lock in some profits -- rather than buy more shares of pretty obviously overvalued stocks.

A second reason for why space stocks are suffering early in 2025, though, is more macroeconomic in nature. 2024 saw the Federal Reserve lower interest rates only three times, which was fewer than expected, and by only 100 basis points total, which was less than expected. And the problem with that is high interest rates make it more expensive for unprofitable companies to borrow money to keep themselves going until their business is big enough that they can earn profits.

Or put more simply: Low interest rates, or falling interest rates, are good for unprofitable stocks. High interest rates (and even rates that don't fall as much as hoped) can be bad.

I suspect this is what's troubling investors in space stocks like Rocket Lab, Planet Labs, and AST SpaceMobile today -- despite two of these companies reporting objectively "good" news. Fed watchers, you see, are currently forecasting that interest rates might fall as little as 50 more basis points this year, and be cut just twice.

On the plus side, this would drop the target federal funds rate to a range of 3.75% to 4%, which is lower than today. On the minus side, it won't be as low as interest rates used to be within recent memory. Also, the Fed might cut even less than the experts are now projecting.

The result? Yesterday, one such expert, Wharton Professor Jeremy Siegel, laid out a base case for stock market performance in 2025: The stock market might rise or fall only 10% this year, with 0% gains the most likely scenario.

Should you buy space stocks in 2025?

For investors who've been treating space stocks like momentum stocks throughout 2024, this is not what they wanted to hear. If Rocket Lab, Planet Labs, and AST SpaceMobile aren't going to rise with a rising market, or enjoy turbocharged growth from low or falling interest rates, then investors are going to have to value these stocks as... well, as value stocks in 2025.

Problem is, neither Rocket Lab, Planet Labs, nor AST are currently profitable, which makes them very hard to value -- because they literally have no P/E ratio to value them on. Faced with this prospect, selling all three stocks because they are not yet obviously cheap is the logical thing to do.

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Rich Smith has positions in Planet Labs Pbc and Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.