Space investing became real this year as Morgan Stanley hosts packed NYC investor summit

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Attendance at Morgan Stanley’s now annual space summit is only one barometer, but it shows that investor interest in the extraterrestrial became serious this year.

“We tripled the investor count” from last year’s conference, Morgan Stanley analyst Adam Jonas told CNBC about Tuesday’s event. “We ran out of room.”

Jonas, known on Wall Street for his early calls on Tesla, has recently been looking at the fast-growing space industry. This was Morgan Stanley’s second space-focused gathering for investors.

The event comes as the space industry undergoes widespread transformation, as both aerospace giants and private capital continue to invest billions of dollars in new technologies and opportunities. Earlier this year, CNBC published an investor’s guide to space, in which several Wall Street analysts predicted space will be the next trillion-dollar industry.

“Investor interest in space is really, really growing,” Jonas said. “[But there are still] knowledge gaps and, in the public support for space, that’s what’s had been lacking.”

Morgan Stanley’s event on Tuesday featured multiple panels, fielding questions from investors.

According to the day’s agenda, Jonas hosted a range of discussions. They included presentations on: Capital formation (with early stage investors Razor’s Edge Ventures, Seraphim Capital, In-Q-Tel and RRE Ventures); Japanese startups (featuring the CEOs of ispace, Astroscale, ALE and Synspective); National security (with the leaders of Parsons, HawkEye 360 and Jacobs); Earth imaging satellites (with Planet Labs and Maxar Technologies); Rocket launchers (led by U.S. based Rocket Lab and Italian builder Avio); and Broadband (with ViaSat and Intelsat).

The day also featured two keynote speakers: Kevin O’Connell, director of the Office of Space Commerce, and George Whitesides, CEO of Virgin Galactic.

The space tourism company made its public debut only a few weeks ago and Jonas cited that as one of the two key changes he’s seen this year. While Jonas noted that Virgin Galactic is small, he says “it’s still something” and pointed to the attention its brought to space as a place of business.

“We’re going to need those private-to-public moments that help accelerate” investor interest, Jonas said.

The past decade has seen nearly $25 billion in private capital invested in space companies, according to investment firm Space Angels, and Virgin Galactic is expected to be just the first of a new generation to join the currently small group of public, pure-play space companies. But Jonas’ explained that a second key change means that going public is not necessarily the only way institutional investors may benefit from this young crop of space companies. He noted an increasing ability and willingness for Morgan Stanley’s clients to invest in private companies directly.

While a number of investors came with background and previous knowledge of the space industry, Jonas said his rough estimate was that as many as half were looking at space for the first time. “There’s only one Wall Street space summit,” Jonas said, and he plans to continue hosting the New York City event at Morgan Stanley’s headquarters, hoping to see even higher investor attendance next year.

The Commerce Department’s O’Connell, who leads the recently established Office of Space Commerce, spoke to Jonas’ point that the knowledge gap in finance has dramatically closed over the past decade. Attendees told CNBC that O’Connell is confident in the finance community’s understanding in the wide variety of space businesses. He thinks investors are more sophisticated today than they used to be, making them more judicious about investing in space.

O’Connell’s top concern lies in the uncertainty of who will be the creditors or insurers for ambitious private projects aimed at the moon or Mars. He said that space doesn’t have any mortgage bankers and questioned whether that role would fall to the government by default. O’Connell also wondered aloud if another institution would take on the risk of backing these typically expensive and high risk missions.

While flying people to space comes with great risk, it also brings the greatest reward. Jonas acknowledged that it is difficult to quantify the dollar impact of human spaceflight. But Virgin Galactic, Boeing, SpaceX and Blue Origin each expect to fly astronauts in 2020.

“I think that’s going to have a tremendous impact on public support,” Jonas said. “Human spaceflight is an innovation catalyst.”

Additionally, he argues that there are few greater inspirations than those who have been to space and returned to Earth to tell others about it.

“There’s no substitute for having someone who says ‘I was there and I saw it,” Jonas added in an interview with CNBC’s “Squawk on the Street.”

Earlier this week, Jonas’ firm gave Virgin Galactic an overweight rating, recommending the company to Morgan Stanley investors. Jonas not only sees value in the company’s core space tourism business, but he assigned a greater value to its plans for hypersonic, point-to-point travel, citing it as a potential disrupter of the airline industry.

Jonas said at the summit that some of the feedback he got from investors questioned the parallels between the space tourism and hypersonic businesses. According people present who spoke to CNBC, Whitesides spent much of his time addressing concerns about Virgin Galactic’s skillset to develop hypersonic technologies – which he believes have a close connection.

Whitesides’ first reason was simply that, for at least the next few years, Virgin Galactic will be the only company flying people on a winged craft at near hypersonic velocities.

He then discussed the technological parallels he sees, explaining what hardware and technology he expects Virgin Galactic will be able to apply to hypersonics.

Whitesides noted the company already has experience testing and flying lightweight structures that are both reusable and experience hypersonic-like trajectories, key to providing any long distance travel service. He expects Virgin Galactic will learn even more in the next few years as it begins space tourism flights at higher rates. He noted that Virgin Galactic’s spacecraft have human pilots, similar to what a hypersonic airliner likely will.

The CEO said there is work to be done on the structural side of a hypersonic aircraft, such as ceramic composite materials, adding that Virgin Galactic may partner with other companies in developing those structures. Whitesides expects propulsion will take the longest time to develop for a hypersonic aircraft. While he did not disclose Virgin Galactic’s choice of propulsion, he ruled out rocket power, saying he’s excited about other types of propulsion.

Jonas asked the room which of the attendees had flown on the supersonic Concorde before it stopped flying in 2003. Whitesides was then asked to explain how Virgin Galactic’s hypersonic aircraft would be different than the Concorde. Fundamentally, the much higher velocity means a hypersonic aircraft would greatly reduce total travel times compared to supersonic, Whitesides replied. Secondly, Whitesides noted the Concorde was designed in the 1960s and that there have been numerous technological improvements since then.

Whitesides outlined Virgin Galactic’s 2020 goals, which are to get the company’s facilities in New Mexico running, begin commercial operations, and fly founder Sir Richard Branson. He said Virgin Galactic expects to scale its operations in 2021, when it will have two spacecraft and notably increase its revenue.

The company has just has a few more test flights to complete before flying Branson, the CEO said. While the company has just over 600 passengers signed on to pay $250,000 per person, Whitesides thinks his company could increase its prices substantially for first commercial flights.

Virgin Galactic’s demand pipeline looks full for the next several years. Even when Jeff Bezos’ Blue Origin begins similarly flying people to the edge of space, Whitesides thinks both companies will have more than enough demand for flights. He’s previously categorized Virgin Galactic’s space tourism flights as an “out-of-home luxury experience,” which Whitesides said is the fastest-growing part of the luxury market.

“Globally, we think around 2 million people can experience this over the coming years at this price point. Over time, we’ll be able to reduce that price point and at that point the market just explodes. It’s 10 times as many at 40 million people,” Whitesides said in October.

Virgin Galactic’s spacecraft are built to fly for 10 years, he said at Morgan Stanley’s event. With about $1 billion invested in development, Whitesides said the per unit cost of building additional spacecraft is relatively low, and Virgin Galactic aims to have a fleet of five spacecraft in a few years.