Security & Space - Fending-off concerns

Hot Topics

Here is an update of the Hot Topics presented in our 2025 outlook.

Politics, Politics, Politics

Politics were indeed a key driver for the sector this semester. Beyond tariffs, the Trump administration remains mired in internal contradictions - most notably the tension between national security investment and spending austerity.

A firm stance on immigration led to a crackdown on illegal immigrants and a wave of protests. Yet, there does not seem to have been any significant increase in federal spending on surveillance or border security infrastructure. Instead, the administration is planning to expand the military's role in border control and drug interdiction.

Even the defense sector hasn’t escaped this political pusillanimity, given the budget's complexity. While the military budget is set to hit $1 trillion, that figure includes reconciliation packages from the prior year. In addition, much depends on the passage of the “One Big Beautiful Bill Act”; failure to pass it intact could see procurement budgets decline.

Congress is also growing wary of out-of-control costs in flagship programs like the Navy’s Constellation. Adjustments are already underway - such as prioritizing updated F-15s over costlier F-35s - or are being negotiated - diverting Navy jet funds to the Air Force's equivalent. Meanwhile, top-down White House programs (e.g., the "Golden Dome") add further complexity. In this uncertain environment, traditional contractors face pressure, while leaner, emerging players may gain traction.

Space Enters a New Phase

The space sector saw strong momentum this semester. While the financial impact is still developing, major milestones were achieved, paving the way for future developments. Amazon launched the first Kuiper satellites to compete with SpaceX’s Starlink. Rocket Lab secured a U.S. Air Force contract for point-to-point rocket delivery, validating its technology roadmap. Alphabet took a stake in AST SpaceMobile, reinforcing confidence in direct-to-device connectivity - further amplified by T-Mobile's Superbowl ad spotlighting the concept.

The outlook remains robust, with numerous catalysts ahead. But progress won’t come without challenges. The recent partial failure of Intuitive Machines's mission and the full failure of Japan’s ispace one, both lunar rovers, highlight the unforgiving nature of space. Even SpaceX suffered major setbacks with Starship failing prematurely during its latest test flights.

Politics also loom large. Proposed NASA budget cuts would condemn key science missions, though initiatives like the “Golden Dome” may drive investment across the space supply chain. Meanwhile, rising geopolitical tensions are boosting regional players - Eutelsat, for instance, has gained ground in Europe as a Starlink alternative.

Security Keeps Mutating

The security sector held up well amid tariff-driven volatility. Its defensive profile offered a safe haven, but as Axon’s results show, the industry is evolving toward a more growth-oriented model. These shifts take time, but momentum is clear.

Cybersecurity was a standout. Despite the Trump administration rolling back Biden-era executive orders and macro-driven analyst caution, the sector delivered strong double-digit YTD performance. The value proposition is clear: cybersecurity is a non-negotiable expense, offering visibility even in uncertain times. 

At the same time, the sector is also undergoing transformation. AI is emerging as both a threat vector and a powerful defense tool, further accelerating the shift toward modernized, intelligent security infrastructure. This will be especially critical for data security, as data fuels AI models and has become a prime target for attackers. In parallel, after a wave of innovation favoring best-of-breed solutions, market momentum is shifting back toward integrated platforms. Companies that dominate a niche and can expand into adjacent markets now present some of the most compelling opportunities. 

Catalysts

• Reaching the commercial stage. Space technologies face many uncertainties during the development phase, somewhat akin to biotechnologies. Recent developments prove that the odds of success are increasing.

• Policy shifts. 1H25 proved that politics could have huge impacts on the sector’s narratives. Overall, despite volatility, the new administration seems favorable to emerging players.

• Acknowledging mutations. Security has traditionally experienced a lot of inertia but is increasingly embracing new technologies. This structural transformation can materialize rather brutally in earnings, taking most investors by surprise.

Risks

• Brutal technology breakthroughs. Threats and defenses naturally co-evolve. If threats were to experience a sudden breakthrough making defenses obsolete, then current players would find themselves out of business. AI applications might be the poster child of such breakthroughs applied to security. 

• SpaceX dependency. The recent feud between Trump and Musk highlighted the U.S. dependency on SpaceX’s services. In this regard, the company’s recent failures could impact the entire sector.

• National security first. Governments, especially in times of transition or with strategic uncertainties, can make bold decisions that go against the interests of private companies.