Outlook 2023 - Security & Space: Made to reach the stars. Time to launch!

2022 was a defining year for the entire theme. Security and space actors played an indispensable role in tackling unexpected challenges. Looking forward, massive investments will have to continue to ensure remaining one step ahead of the competition. A slur of innovation is coming, and investors should focus on identifying the right players.

Bottom line

Each year is full of opportunities. In 2022 the security and space theme was driven by geopolitical instability and macro headwinds. Multiple compression severely impacted cybersecurity despite positive earnings surprises and guidance upgrades. The space sector continued to recover from its 2021 SPAC wave crash, and, despite tight macro conditions, it demonstrated multiple successful launches and significant use cases for earth observation. But only the defense sector, the one we avoid exposure to due to ESG policy, has finished the year in the green for obvious reasons.

We expect 2023 to be a beneficial year for the entire theme. Favorable regulations and numerous other drivers will come into force and drive the sector. As 2022 has significantly reset expectations and valuations despite significantly strengthening the long-term investment case of the whole universe, we expect 2023 to be a major year for a market turnaround.

Table of contents

Portfolio Snapshot
Security & Space Overview

Space applications
Commercial space
Space infrastructure
People, buildings & goods security
Testing, inspection & certification

A glance in the rearview mirror

Portfolio Snapshot


Made to reach the stars. Time to launch

Cybersecurity's strong and unshaken

2022 has been a challenging year for the sector. Despite strong fundamentals, unyielding drivers in place, and perfect star alignment for a record year, the macro environment got the best of cybersecurity. Our long-term conviction in the sector remains unchanged. Cybersecurity is a necessity, and we are only at the beginning for this sector.

Data generation is exponentially increasing, and so is the amount of data that must be secured. The cost of cyberattacks is reaching an astronomical dimension. The only option for enterprises to avoid surreal costs is to invest in cybersecurity. Moreover, we expect cybersecurity companies to leverage implementing AI/ML and automation in addressing the scale of modern security needs, thus improving efficiency and significantly driving margins.

The space sector is proving to be indispensable

In 2022 the space sector has shown its true potential. In 2023 we expect the momentum to continue. We expect a lot of development in all sub-sectors, from launchers to satellite constellations. The telecom constellations are expected to start providing broadband internet speeds by 2024, meaning significant developmental newsflow already in 2023. As Russia has left the space picture, all eyes are now turned toward SpaceX and NASA's heavy launchers. Small launchers stand ready to capture the newly available market share, and a handful of maiden launches are planned for next year.

Finally, boosted by the Russian-Ukrainian conflict, we believe it is only the beginning for space imagery. New contracts will be on a different scale than the already significant one awarded by the U.S. spy agency in 2022. Overall, we expect "data from space" to get a whole new meaning in the future, with platforms ingesting tons of data from numerous sources and providing real-time AI insights.

It is not time to be defensive

While the year 2022 favored the traditional aerospace and defense sector for obvious reasons but also for its financially "defensive" nature, we do not expect this paradigm to continue. We expect digital security and innovative space companies to outperform the old war behemoths in 2023. Punished beyond any reason in 2022, we expect the new generation of cybersecurity and space players to be favored by the market. However, as we have written on multiple occasions, we recognize the importance of the defense sector and its massive investments in R&D. We strongly believe that the industry will have no choice but to up its investments in cybersecurity and even utilize solutions offered by existing players. For example, the Department of Defense is already using the services of Zscaler Inc.

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How more necessary can a necessity be?

Cybersecurity is vital to protect growing data needs

In 2022 the world has continued transitioning to the cloud. The fact that the data stored in the cloud cannot be simply erased further reinforces the importance of cybersecurity: cybersecurity must forever protect exponentially growing and structurally complex data! Until now, the world has operated from bytes up to Yottabytes (10^24), but two new prefixes appeared in November 2022: Ronna byte (10^27) and Quetta byte (10^30). The world will sooner or later invent the technologies for that scale, and the cybersecurity industry will need to secure it! Cybersecurity spending cannot stop, and the result is already visible in companies displaying resilience in billings, revenues, and margins. Indeed, an average cyberattack costs $9.4mn to a U.S. firm (not counting the reputational cost) – it is not worth it not to invest in proper cyberdefense. You can rent a hacker for less than $1'000 on the darknet. Individual training and a global security strategy are the best defense.

Worsening attack landscape

Hybrid work, growing attack surface (there are >200bn connected devices to be secured), conflict in Ukraine, and hacktivists targeting national infrastructure underline the importance of having a reliable cybersecurity solution. As governments heavily invest in digitizing critical infrastructure, they further support the investment momentum through favorable regulations. After estimating the impact of ransomware attacks to be at about €20bn worldwide and the cost of cybercrime at €5.5tn, the European Commission wants to enforce better cybersecurity. The E.U. aims to ensure that everyday connected appliances are less vulnerable to cyberattacks by mandating manufacturers to strengthen security throughout their lifecycles.

Zero trust, skyrocket growth

Zero-trust is here, and companies are massively adopting the new framework by urgently upgrading their legacy cybersecurity systems. Ransomware attacks remain the eternal pest of modern digital ecosystems (+52% YoY increase), and "Zero-trust" has proved it can be an efficient pest control by distrusting everything and everyone. The old "moat-and-castle" framework is no longer suited to securing the software supply chain and reducing operational, financial, and reputational risks. Zero-trust's replacement of the traditional framework is accelerating. To ensure the correct application of zero-trust, enterprises must upgrade. Zero-trust is considered a fitting framework to up the cyber defense and protect anyone, from government infrastructure to SMEs and retail clients.

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The all-watching eyes

Ukraine's legacy

The Ukrainian conflict demonstrated how vital imagery data from commercial players were. Despite being of lower resolution than cutting-edge spy satellites, their higher revisit time and lower cost provided useful complementary imagery, enabling better situational awareness. We, therefore, believe the momentum in demand for commercial services is only starting. After the multi-billion Electro-Optical Commercial Layer contract, the U.S. National Reconnaissance Office has signed study contracts with radar and radio frequency commercial providers. This is only an initial step, as we believe similar structuring contracts will follow and fuel the sector's development. As often with space technology, the military will benefit first, but the civilian world will be the ultimate winner.

Power to platforms

The technical expertise and human resources required to extract meaningful insights currently slow the sector's development. We expect ongoing technological developments, accelerated by the rapid renewal of constellations, to minimize such barriers. Data is ultimately going to be processed first directly in space, which will accelerate data processing and analytics. But at the end of the day, platforms such as the one developed by Blacksky will merge various sources within one framework and provide on-demand insights powered by A.I., which will optimize data capture and processing. The future belongs to "Imagery-as-a-Service."

When climate meets strategy

The year 2022 demonstrated how fast the climate was changing and how threatening it was to living beings and economies. Unfortunately, this problem will not go away soon, but Earth Observation can help monitor the planet to study, forecast, and mitigate the effects of climate catastrophes. Institutional bodies will feel intense pressure to develop or fund adequate systems. The E.U. is showing the way, abiding by its citizens' requests and setting the subject as a top priority for the European Space Agency. But the topic has strategic implications, too: climate change will disrupt military activities and may open new potential battlefields in previously unfavorable places, such as the poles. We expect commercial players to seize the opportunity as it develops.

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Focusing on where the money is

Constellations keep accelerating

The momentum for telecom constellations is all but slowing down, and we expect it to drive the sector for the years to come. The proofs of the edge given by SpaceX's Starlink on the Ukrainian battlefield keep emerging and comfort the technology's superiority. Although late, Amazon.com Inc's Kuiper has yielded the largest launch contract ever. And even the European Union, not known for its rapid decision-making processes, has agreed on launching a sovereign constellation by 2027 for a price tag of €6bn, of which half is already funded. Business models might not be certain yet, but utility sure is.

Satellite-to-smartphone slowly crawling in

Satellite-to-smartphone connectivity has made timid debuts with the launch of Apple Inc's latest iPhone, on which an SOS mode is available. The infrastructure on the satellite side is indeed too limited for now to provide speeds for modern internet uses. The situation is not expected to change fundamentally before at least late 2023 when the partnership between T-Mobile and SpaceX will allow cellular coverage for SMS everywhere in the U.S. territories and will give customers a taste of what is to come. The real change will come when AST SpaceMobile's constellation comes online in 2024 if there is no further delay, bringing broadband speeds to smartphones thanks to satellites relying on 64 square-meter antennae.

Space tourism is back on Earth

After grand demonstrations of initial success, space tourism is now back on Earth. Virgin Galactic remains stuck in the upgrade process of its fleet and slowly pivots towards a new generation of spacecraft, while Blue Origin has paused flights following the failure of a non-crewed booster. More importantly, both companies are burning cash and are visibly struggling to find a path toward profitability, which will be pushed further away until service can be ensured. The segment is not necessarily condemned but will have to undergo significant changes to get back on track and will likely need several quarters to exit this period of disillusionment.

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Structural upside despite short-term uncertainties

The post-Russia shakeup

Russia accounted for a substantial part of the commercial launch market, thanks to the attractive price positioning of their Soyuz workhorse. For obvious reasons, this solution is out of the picture now, forcing the market to readapt and open opportunities for other players. However, options for businesses needing to launch a large payload are currently limited. The institutional market is undergoing a generational transition, leaving only SpaceX's Falcon 9 as a large operational launcher. We, therefore, believe that there are substantial opportunities to seize for players developing reusable solutions, such as Rocket Lab and Blue Origin. Their price positioning is likely much more aggressive than traditional launchers like Ariane 6 due to the inherent cost benefit of not having to discard the rocket on each launch.

The first failure in the small launch sector?

The small launch segment is slowly but surely coming to its moment of truth. 2023 will see the maiden launches of Relativity and ABL, while Firefly and Virgin Orbit will be ramping up their commercial activities. Several other players are also nearing the end of their launchers' development in the U.S. and Europe. However, the segment is under pressure from ridesharing services provided by SpaceX and is at risk of being overcrowded. In this regard, the capital increase of Virgin Orbit will be interesting to follow. We might witness the first high-profile failure with Astra Space, which is at risk of not overcoming its past suboptimal execution. We believe the winners will be those players whose product portfolio enables offsetting launch cycles and developing larger launchers.

The future of infrastructure belongs to private players

We expect the momentum towards private players to continue, although paradoxically, most investments are expected to come from institutional customers. The successful launch of NASA's SLS was a missed opportunity to accelerate the transition, but this transition is simply unavoidable considering the private segment's considerable cost advantage. While 2023 is not expected to be transformational in this regard, the building blocks for the future will slowly come into place. The first flight of SpaceX's Starship is the most important one, which promises a true leap ahead in pricing. We are also looking forward to updates on the first private space stations, which are expected to start launching in 2025.

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The urge for World peace has never been stronger

A fragile concept of peace

2022 has been a year to behold, as international tensions and the probability of a full-fledged war have never been higher. Russian-Ukraine, China-Taiwan, and the Middle East:  the number of unstable regions has continued to grow. And global defense budgets follow: e.g., the FY23 DoD budget request has increased by 4.1% YoY. All countries worldwide, even those that remained neutral with minimal defense budgets, are urgently investing in repleting the defensive equipment malnourished by decades of under-investment.

Going hypersonic will alleviate hyper pressure

Russia and China introduced their hypersonic weapons in 2018. In 2022, Russia successfully threatened the world that they might use these weapons, stating that the foreign nations do not have the necessary anti-hypersonic defenses. The U.S. already understood the importance of developing hypersonic armaments and had upped their budgets. The Pentagon is targeting the production of hypersonic missiles by 2024, and the Navy to integrate such missiles on its submarines by 2028.

"Defensive" defense turning to "cyber" defense

As the demand for sustainable investing rises, investors are becoming more and more conscious about non-ESG-compliant names. Constraints become stricter every day, and it is increasingly painful for investors. Indeed, defense stocks are the best positive performers in the security & space universe in 2022 but remain unavailable for investment behind the ESG wall. We believe the latter will potentially lead to more and more pressure overtime for the whole sector despite positive defensive performance this year. However, we recognize enormous investments from the defense sector in innovation, space, and cybersecurity. When critical public infrastructure is digitizing, governments have no choice but to dedicate more budgets to cybersecurity and new space frontiers, cross-pollinating both sectors.

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The physical world craves more security

Smarter world = Greener world

We expect the increasing inclination toward climate protection and controlling carbon emissions to propel the sector's growth. As the global population is becoming more aware of various smart home technologies and automated energy-saving solutions (e.g., HVAC and smart home sensors knowing if you are at home), adopting such technologies is accelerating. Government, in parallel, continues to implement smart grids and work on smart cities, which by construction should contain smart and automated solutions, be energy efficient, and provide unprecedented people and infrastructure security.

Safety concerns are at the top of everyone's lists

The initial surge for security solutions was during the pandemic when people stayed continuously at home, energy bills were piling up, and public infrastructure was left with reduced security. This has driven consumers and governments to up their security game by installing smart home devices, cameras, and video doorbells to limit hand contact and safety. We strongly believe in smart home security cameras, alarms, and window sensors, as crime perception remains high. However, due to the challenging market environment and primarily consumer (B2C) oriented sector, we expected somewhat muted demand in the short to medium term.

Government improving the border control

2022 was supposed to be the "Covid-19 reopening year," but the Russian-Ukrainian conflict (and subsequent people displacement) has exponentially increased the border crossing activity. People were massively on the move in all directions, and governments have reconfirmed ongoing investments and their commitment to improving border and internal security through traceability software and hardware. As part of this investment cycle, governments will continue adding biometric security solutions and expanding the installed base of video cameras to improve coverage. Moreover, modern solutions often come equipped with artificial intelligence and machine learning solutions, which allow for security automation (and cost efficiency), real-time threat analysis, and more reliable results – making upgrades almost indispensable, further driving demand.

Recognizing the face of future growth

Investment has been going toward vocal and facial biometrics to support digital transformation. The growth is expected to be driven by steady adoption beyond its historical core, the law enforcement market. The banking, insurance and financial services, healthcare, military, and automotive sectors frequently use biometrics for identification or authentication. Government investment is also on the rise. Continuous biometric authentication, particularly within the enterprise space, is also expected to boost the market.

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Certification is becoming ubiquitous, and inspection is needed more than ever

Your diet is a bank account - ensure only good "investments"

Food fraud is a lucrative business worth $50bn annually. The Sanitary scandals of 2022 have only proved the importance of regular testing, inspections, and certifications (TIC) in the food industry. As criminals go longer distances to commit fraud, better all-encompassing traceability is becoming a must for the industry. A man was caught selling counterfeit chocolate at a massive scale in the U.K., a milk transportation tank was rigged to dilute milk with water, "organic" grain was misrepresented following a grain shortage from Ukraine, and 10% of all seafood annually is smuggled. It is up to governments to guarantee a certain degree of food industry safety through rigorous testing and subsequent certification.

Food safety is a significant concern

The younger Swiss population was shocked in April 2022 when Swiss retail shelves lost Kinder chocolates due to concerns over Salmonella bacteria. After over 100 children were poisoned in the EU, Ferrero recalled all products, finding that poisonings were likely to be connected with the factory in Arlon in Belgium. The food supply chain is already very complex as it takes >1'500 miles for food to reach your plate, and the public requires significant assurances. Such assurance is only achievable through complete TIC, requiring massive investments in these fields. This is especially needed as food becomes available. The more food is provided by food processors, and the more the level of tech industrialization increases, the more the volume of food testing is set to grow and transition to more expensive methods.

More stringent ESG considerations require rigorous certification

Populations, governments, and investors alike are becoming more conscious of their impact on the environment. Consumers demand clean labels, governments are judged by their green initiatives, and investors demand sustainable investments. With an increasing push from governments to guarantee sustainability, companies must prove their durability and high standards through certification. Public companies increasingly need to report ESG metrics to enter investors' portfolios. Measuring (E)nvironmental impact relies on the TIC industry and will amplify demand by introducing an extra revenue stream.

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  • Favorable regulation. 2021 was the year of U.S. regulation. The E.U. led in 2022. The sector would blossom should countries worldwide continue to push for more stringent cybersecurity regulations.

  • International tensions. The more intense the pressure in the political arena, the more people and governments demand higher security, for which the year 2022 was a good example.

  • Successful launches. Nothing is more encouraging than hearing "trajectory is nominal" after a successful launch. These are critical for the whole sector as they attract demand and investment.


  • Cyberthreat overkill. Cyber threats are getting more sophisticated daily. Should they surpass cybersecurity measures, the whole system may collapse.

  • Tight funding. A funding crunch or continuously rising rates would be a major headwind for the most innovative cybersecurity and space firms that are yet to become profitable.

  • War escalation. While a moderate level of conflict would benefit the theme, a war escalation beyond a regional perimeter would destroy digital and physical infrastructure, setting the sectors decades in the past.


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