Rocket Lab (NASDAQ:RKLB | RKLB Price Prediction) disclosed last night that qualification testing of the Stage 1 tank for its Neutron medium-lift rocket resulted in a rupture during a hydrostatic pressure trial. The company stated there was no significant damage to test structures or facilities, and the next Stage 1 tank is already in production. It said that testing failures occur during qualification to validate structural integrity and safety margins. The team is reviewing data to assess the impact on Neutron’s launch schedule, with an update planned for the fourth-quarter earnings call in February.
The market reacted immediately to the news, sending shares 5.5% lower in morning trading as the setback raises concerns for Rocket Lab’s market expansion goals. If the explosion further delays Neutron’s debut beyond the current early-2026 target, should investors consider selling?
A Stellar Stock Run Fueled by Space Ambitions
Rocket Lab’s shares have surged over 170% in the past year and more than 1,300% over the last three years, driven by its position as the second most successful space company after SpaceX. Investors have bet on the company’s ability to maintain high valuations through growth in launch services and space systems.
This performance stems from Rocket Lab’s record backlog exceeding $2 billion, including an $816 million satellite contract, and its Electron rocket achieving 21 missions in 2025 — it just successfully launched today its first mission of 2026, titled “The Cosmos Will See You Now.”
Contributions to NASA’s Artemis and Neutron’s Role
In addition to its commercial business, Rocket Lab has also supported NASA’s Artemis program, which aims to return humans to the Moon and establish a sustainable presence. In 2022, the company launched the CAPSTONE CubeSat mission on its Electron rocket from New Zealand. CAPSTONE tested a near-rectilinear halo orbit around the Moon, the same intended for NASA’s Gateway space station, which will serve as a staging point for Artemis lunar missions. This pathfinding effort provided data on navigation and operations to inform future crewed activities under Artemis.
With Neutron, Rocket Lab seeks to expand beyond small payloads. The reusable medium-lift rocket targets 13,000 kilograms to low-Earth orbit, focusing on constellation deployments and heavier payloads. Contracts are priced at $50 million to $55 million per flight, compared to Electron’s $8.4 million average. Neutron’s success could double sales to $1.2 billion by 2027, with margins of 40% to 50%, according to analyst projections, and would position Rocket Lab to compete in larger markets as demand rises for more launches.
Repeated Delays Heighten Valuation Risks
However, Neutron’s timeline has faced multiple setbacks, raising doubts about execution. Initially targeted for 2024, the debut slipped to late 2025, then to 2026 due to extensive testing needs. The rocket was expected to appear at its Virginia launch site in Q1 2026, with a first flight to take place no earlier than mid-2026.
Development costs for the Neutron were around $360 million by the end of 2025, though delays add $15 million quarterly. The recent tank rupture could push this further back, potentially to late 2026 or 2027, raising costs even higher.
Analysts began questioning the aggressiveness of the Q1 2026 pad arrival. BTIG forecasts one test and one paid launch in 2026, scaling to nine by 2029, but notes risks from investigation outcomes. Competition also looms from SpaceX’s Falcon 9, which has 17,500 kg capacity at $67 million to $70 million per launch, and others like Firefly Aerospace‘s (NASDAQ:FLY) Eclipse in late 2026.
Rocket Lab’s valuation at 58 times forward sales assumes 50% to 100% annual growth depending on margin expansion, but cash burn, potential dilution from equity raises, supply chain issues, and regulatory hurdles introduce significant risk. A flawless debut is needed for credibility and this test could be the first of several.
Key Takeaway
I had recently warned about Rocket Lab’s sky-high valuation and that any additional delays in Neutron’s launch could cause a re-rating lower. That appears to be happening now, with the stock potentially having further to fall amid uncertainty.
As I said earlier this month, while I’m still optimistic about Rocket Lab’s long-term outlook, waiting for a cheaper price before buying in is the smart move for investors to take, and that holds true today.
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