Rocket Lab’s Neutron Program Faces Testing Setback

Rocket Lab USA US7731221062

Rocket Lab USA experienced a significant development challenge this week. An incident during testing for its next-generation Neutron rocket has introduced fresh uncertainty into the ambitious launch vehicle program, prompting a reassessment of the project's immediate timeline.

Despite the setback, the broader analyst community largely retains a favorable outlook on the company's long-term prospects. Notably, Bank of America doubled its price target to $120, while Morgan Stanley upgraded the stock to "Overweight" with a $105 target. KeyCorp, however, stands as an exception, having removed its buy recommendation. The company's valuation remains ambitious, with a market capitalization of $47 billion, trading at approximately 82.5 times revenue. This premium pricing hinges on the Neutron rocket transitioning smoothly to commercial operations in the coming years. Major institutional investors, including Baillie Gifford, have recently increased their holdings.

Pressure Test Incident Details

On January 21, 2026, Rocket Lab disclosed that the first-stage tank for the Neutron rocket ruptured during a scheduled pressure test. Company engineers were intentionally stressing the structure to its limits to establish definitive safety margins, a standard procedure in the qualification phase for a new launch system. Rocket Lab emphasized that neither the test facilities nor other structures sustained significant damage. Production of a successor tank is already underway. The firm plans to provide a detailed update on any potential schedule impacts during its quarterly earnings report in February.

Electron Business Provides Operational Stability

As development on the larger Neutron continues, Rocket Lab's operational backbone remains its workhorse Electron rocket. The company successfully completed its 80th Electron mission on January 22, deploying two satellites for Open Cosmos. Last year, Rocket Lab executed 21 launches, securing its position as the second-largest commercial launch provider behind SpaceX. The firm's total backlog now exceeds $2 billion, which includes a substantial $816 million satellite contract, ensuring a stable foundation while Neutron development continues.

Neutron Timeline and Financial Implications

The Neutron program has encountered repeated delays. An initial target for a maiden flight in 2024 was subsequently pushed to 2026. Development costs have accrued to roughly $360 million, with each additional quarter of delay estimated to cost approximately $15 million. Analysts from BTIG project a test flight and an initial commercial mission in 2026, with the potential for up to nine launches annually beginning in 2029. The upcoming quarterly presentation in February is anticipated to deliver crucial clarity on the revised program schedule.

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