The investment frenzy in space stocks, once fueled by the "SpaceX halo," is now losing steam.

Previously boosted by news of SpaceX's potential public listing, individual space stocks and related exchange-traded funds (ETFs) on the U.S. market tumbled from recent highs on Monday, June 1st, marking a second consecutive day of declines. From the dramatic explosion of Blue Origin's New Glenn rocket, to reports of a potential valuation cut for SpaceX's initial public offering (IPO), to growing market warnings about a bubble in the sector, the speculative fervor driven by the SpaceX narrative is decelerating. Some analysts even suggest that the prospect of a SpaceX IPO and a wave of other mega-listings could itself be a negative factor for the sector.

Broad-Based Slowdown in Space Stocks

Data shows that by Monday's close, the Procure Space ETF (UFO.US), a space-themed fund with approximately $1.2 billion in assets, had fallen more than 10% from its 52-week high of $67.81 over two trading sessions. Earlier this year, the ETF had seen gains of nearly 60%. Individual space stocks also faced selling pressure. Space communications company AST SpaceMobile (ASTS.US) plunged nearly 7% on Monday, with trading temporarily halted at one point due to the steep decline. The stock had previously been favored by investors after securing a launch agreement with Blue Origin.

Rocket Lab USA Inc (NASDAQ: RKLB)

Rocket Lab's shares fell over 15% on Monday.

Intuitive Machines Inc (NASDAQ: LUNR)

Intuitive Machines dropped around 13%. Both Intuitive Machines and AST SpaceMobile had surged approximately 59% in April.

Even space infrastructure company Redwire, which hit a record high just a month ago, fell about 16%. The stock had rallied as much as 223% year-to-date and was popular among retail investors. However, following this rally, the company's enterprise value-to-sales ratio expanded from 3.8 times at the start of the year to 8.8 times, indicating it was clearly in overbought territory. Jefferies analyst Sheila Kahyaoglu recently downgraded the stock from Buy to Hold.

Steve Sosnick, Chief Strategist at Interactive Brokers, attributed the sell-off to two triggering events. The first was the violent explosion of Blue Origin's New Glenn heavy-lift rocket during a static fire test late last Thursday, May 28th. The LC-36 launch facility, costing roughly $1 billion, will likely require extensive repairs. Founder Jeff Bezos later posted that it was "a tough day." The incident is also expected to set back Blue Origin's rocket development by about a year. This means NASA's Artemis moon program may have to rely more heavily on SpaceX's Starship, which itself is under a flight suspension investigation following an anomaly during a test flight on May 22nd. Furthermore, as Blue Origin was scheduled to launch satellites for AST SpaceMobile, AST now faces potential project delays. Deutsche Bank analyst Bryan Kraft subsequently downgraded AST SpaceMobile from Buy to Hold. Sosnick noted that the New Glenn accident "poured cold water on a sector that was already very hot, if not overheated."

Following this, reports emerged that SpaceX, after consultations with advisors and investors on Friday, May 29th, had lowered its target IPO valuation from a previous expectation of over $2 trillion to around $1.8 trillion. To market observers, this new valuation range suggests that even industry insiders believe space sector valuations may be nearing a peak. Although Elon Musk quickly denied the "valuation cut" reports on social media, calling them "inaccurate," the continued ambiguity around IPO details has sustained market anxiety.

Beneath these trigger events lie deeper concerns about high valuations and a sector bubble. Kahyaoglu stated, "While general excitement about space has driven the performance of many names in the industry, in the near term there is limited room for these stocks to move higher."

Eric Diton, President of The Wealth Alliance, pointed out that recent downgrades of several space stocks are forcing investors to confront their extremely high valuations. Measured by price-to-sales ratios, AST is trading at 260 times its estimated 2026 sales. Rocket Lab trades at 91 times sales, up from less than 20 times a year ago. Redwire trades at nearly 9 times its estimated 2026 sales, also significantly higher than the 3 times multiple a year prior.

Looking at SpaceX itself, based on the rumored IPO pricing, its price-to-sales ratio would be around 107 times. In 2025, SpaceX generated approximately $18.7 billion in revenue but recorded a net loss of $4.94 billion, a reversal from a $791 million profit in 2024, reportedly due to high capital expenditures from its merger with xAI and infrastructure expansion. Despite this, some investors see a "massive gap" and "untenable logic" between SpaceX's loss figures and a $2 trillion valuation.

Diton stated bluntly that this "narrative-driven" valuation model has created a contagion effect across the entire space sector. The result is that U.S. space stocks are essentially "momentum plays," with valuations built more on future profit expectations than current fundamentals, leading to high volatility. Rocket development and satellite deployment are not only technically challenging, but a fault in any single link can delay an entire project, rewriting a company's valuation logic. Real-world examples of "small problems leading to catastrophic consequences" push the risk-aversion instincts of momentum investors to the limit.

Impact of the Mega-IPO Wave Including SpaceX

Furthermore, some market participants believe that while the positive news of a SpaceX listing initially fueled the space stock rally, a cluster of mega-IPOs including SpaceX, OpenAI, and Anthropic could also squeeze the nascent space stock bubble and even impact overall market liquidity.

Diton suggested that investors might "sell currently listed space stocks to free up capital to invest in SpaceX" once it goes public. If this "liquidity drain" materializes, it could deliver a second blow to the already-weakening space sector.

In fact, as early as last week, large mutual funds and passive index funds had begun setting aside more cash and preparing to reduce some existing large-cap holdings to invest in the upcoming wave of massive IPOs, positioning for hot listings like SpaceX and OpenAI.

John Flood, Goldman Sachs' Head of Americas Equity Execution Services for Global Banking & Markets, noted that for passive funds, the potential inclusion of new large listings may force them to sell other large stocks. "Investors are increasingly focused on the potential impact of large upcoming listings. In the decades past, ahead of every major U.S. IPO, U.S. equity mutual funds have increased their cash holdings," he said.

Earlier Goldman Sachs research also indicated that with AI trading already highly crowded, technology stock weightings nearing historical bubble levels, the 10-year Treasury yield still elevated, and IPO supply resurging, the U.S. stock bull market is entering a significant stress test phase.

Bank of America has also warned of resulting "market structure risks." BofA emphasized that the overall U.S. stock market currently exhibits classic late-cycle bubble characteristics: strong price momentum, high retail participation, low volatility, crowded positioning in AI leaders, and highly concentrated market leadership. The IPO frenzy itself carries a dual meaning. On one hand, it signals strong risk appetite in capital markets, a reopening of exit channels for private companies, and a revitalization of the private equity and venture capital ecosystem, typically a sign of a deepening bull market. On the other hand, mega-IPOs absorb secondary market liquidity, forcing a reallocation of capital between existing AI leaders and newly listed AI platforms. If SpaceX goes public with a valuation around $1.75 trillion or higher, raising massive capital, it would not just be a "commercial space IPO" but a liquidity test for the market of historic, record-breaking IPO proportions.