Rocket Lab Corp. (NASDAQ: RKLB), a prominent space industry player, saw a significant change in analyst opinion as KeyBanc Capital Markets lowered its recommendation from Overweight to Sector Weight on Thursday. This downgrade ended an 18-month streak where Rocket Lab’s stock had avoided such negative revisions. The firm continues to recognize Rocket Lab as a high-quality enterprise within the space sector but indicates that the recent surge in RKLB’s stock price may have already factored in key developmental milestones and growth drivers.
The downgrade specifically centers on the perception that the market has largely priced in Rocket Lab’s major recent accomplishments. Among these accomplishments is the substantial contract award received in December from the Space Development Agency, valued at $816 million. This contract, part of the agency’s Tranche 3 initiatives, has nearly doubled Rocket Lab’s backlog and stands out as a major revenue catalyst for the company.
Additionally, Rocket Lab’s infrastructure expansion—including the launch of the LC-3 launch pad in Virginia—marks significant progress. Concurrently, production of the company’s Archimedes engine continues at pace, with the asset being more than 90% complete towards qualifying standards. These operational advancements underpin Rocket Lab's technical capabilities and capacity to scale its launch services.
Policy developments have also contributed to a favorable environment for Rocket Lab. A December 2025 executive order focusing on American Space Superiority, coupled with the appointment of Jared Isaacman as NASA Administrator, has created tailwinds that benefit commercial space companies, including Rocket Lab, particularly in competition with traditional defense contractors.
Despite these positives, KeyBanc emphasizes the impact of Rocket Lab's strong stock performance, which includes a 280% year-over-year increase in share price, pushing values above $92.00 in January. The broader market excitement was partly fueled by rumors regarding a potential SpaceX Initial Public Offering (IPO) with an estimated valuation of $1.5 trillion, which sparked a revaluation across the space sector stocks and consequently lifted Rocket Lab’s market valuation.
Nonetheless, this enthusiasm has resulted in Rocket Lab's shares trading at a substantial premium. Presently, the stock is priced at around 42 times the company’s projected 2027 sales, a significant markup compared to the historical price-to-sales ratio of 20-30 times typically observed during early growth stages of competitors like SpaceX.
An important uncertainty that KeyBanc highlights is the timeline and success of the Neutron rocket, Rocket Lab’s forthcoming launch vehicle designed to compete in the heavy-lift launch market. The initially anticipated maiden flight has been delayed into the first quarter or later, and analysts are awaiting a confirmed schedule to restore confidence in this key project’s timeline.
KeyBanc has outlined scenarios in which it might adopt a more positive stance on Rocket Lab’s stock. These include a fully successful maiden launch of the Neutron rocket, the acquisition of additional sizable contracts that would materially boost the company’s backlog, and greater clarity on the company’s strategy regarding a potential long-term satellite constellation or commercial services model.
Following the downgrade, Rocket Lab’s shares experienced a decline but demonstrated partial recovery by the time of publication, with trading down approximately 2.95% at $89.09. This volatility underscores the market’s sensitivity to shifts in analyst outlook and the challenges Rocket Lab faces as it seeks to extend its growth trajectory amid elevated valuation expectations and execution risks.