- KeyBanc downgraded Rocket Lab (RKLB) to Sector Weight from Overweight on Jan. 15, 2026, saying major growth catalysts are now largely priced in.
- Recent wins and milestones, including the ~$816M SDA Tranche 3 award, LC-3 opening, and Archimedes engine progress, support the story but have lifted valuation.
- Rocket Lab is posting rapid revenue growth and improving gross margins with a record backlog, but remains unprofitable as Neutron and infrastructure spending continues.
- Further upside hinges on new surprises, especially Neutron commercialization timing and performance, incremental large contracts, and clearer margin and cash-flow improvement.
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On January 15, 2026, KeyBanc Capital Markets downgraded Rocket Lab (RKLB) to Sector Weight from Overweight, citing that its key growth catalysts are no longer underappreciated by investors and many have already been achieved or are priced into current valuation levels.
This downgrade follows a period of strong execution by Rocket Lab: the company has secured major contracts such as a ~$816 million award from the Space Development Agency (SDA) Tranche 3 in December 2025, which nearly doubled RKLB’s existing backlog, and also opened its LC-3 launch facility at Wallops Island to support its upcoming Neutron rocket operations. Progress on the Archimedes engine—now in production and testing—is also nearing qualification status.
Financially, RKLB has achieved record revenues and margin expansion: $155 million in revenue in Q3 2025 (≈48 % YoY growth) with GAAP gross margins rising to the high 30 % range; Q2 revenue was $144.5 million with non-GAAP gross margin of ~36.9 %. However, profitability still remains negative, with expected adjusted EBITDA losses continuing, driven by heavy investment in Neutron development, infrastructure, and space systems.
From a valuation standpoint, KeyBanc notes that much of what the market was looking forward to—landmark contracts, infrastructure build-out, regulatory or policy tailwinds—has now come through (e.g. executive orders, government support), reducing “surprise element” risk. With the near-term risk/reward characterized as balanced, further upside will likely rely on new, unexpected catalysts rather than incremental execution ones.
Strategically, the company is positioned well to benefit from a rising secular demand for launch services, government investment in defense and space technologies, and demand for satellite constellations. But the path to sustainable profitability and free cash flow remains uncertain. The Neutron rocket plays a central role—as a re-usable, medium-lift vehicle—but delays or qualification issues could materially affect forward expectations.
Supporting Notes
- KeyBanc’s downgrade: Rocket Lab moved from Overweight to Sector Weight on January 15, 2026; growth catalysts such as recent contracts and infrastructure developments considered priced in.
- SDA Tranche 3 contract worth $816 million awarded in December 2025; nearly doubled Rocket Lab’s backlog.
- Launch Complex 3 at Wallops Island opened in August 2025 to support Neutron rocket operations.
- Progress on the Archimedes engine: roughly 18 months of continuous testing, production ramped up, engine ~90 % ready for qualification and launch; production cycle under 10 days per engine.
- Q3 2025 revenue: $155 million, up ~48 % YoY; record GAAP gross margin of ~37 %.
- Q2 2025 revenue: $144.5 million, non-GAAP gross margin of ~36.9 %; backlog over $1 billion with mix 60 % launch services, 40 % space systems; government vs commercial roughly split.
- Despite strong revenue growth, adjusted EBITDA losses continue (projected loss in Q4 2025 of $23-29 million).
- KeyBanc says policy tailwinds (executive orders, U.S. space dominance) are now broadly recognised by markets.
- Further upside catalysts would include Neutron commercial launch timing, large contract wins, and profitability/cash flow improvements.