WASHINGTON — As the defense industry continue to size up what the Trump administration’s budget and staffing changes might mean for their business, commercial space companies may find opportunity in the leaner spending environment, according to new analysis.
Budget cuts and reallocations are creating an opening for commercial players in the space industry, said a recent report by the investment firm Cantor Fitzgerald
Defense Secretary Pete Hegseth last week directed the Pentagon to implement an 8% annual reduction in its budget over the next five years. The fiscal year 2026 budget could see an immediate $50 billion cut that would be reallocated to fund administration priorities such as border security operations.
The spending squeeze is likely to drive procurement reforms that could favor commercial space firms, according to “Cantor’s Guide to Space Investing,” written by Colin Canfield, equity analyst at Cantor Fitzgerald’s government technology and space practice.
“In space, this likely drives a significant mix-shift towards fixed-price contracting, especially as legacy programs continue to struggle across capability, cost and timeline,” said Canfield.
This forecast aligns with recent comments by Maj. Gen. Stephen Purdy, the Space Force’s acting procurement executive, who noted that half of the 59 major acquisition programs under his office already operate under fixed-price contracts, and the plan is to expand the model to reduce financial risk and improve program execution.
Cuts versus reprogramming
Canfield cautions against misinterpreting the administration’s budget directives.
“We think the notion of a ~$50 billion DoD cut in 2026 is a misconception,” he said. “While the dollar value gets market attention, reprogramming of spending is an annual occurrence of any budget process.”
The administration’s approach may merely redirect spending toward different priorities — with commercial space solutions potentially among the beneficiaries, he said, particularly space firms that have developed lean operations in order to compete with the industry’s dominant player SpaceX.
With regard to defense spending, “the more relevant sign-posts are updates from Congress,” Canfield said.
The Senate Budget Committee’s recent resolution proposing a $150 billion increase in defense spending over four years is one such sign-post, although fiscal uncertainty continues to reign as lawmakers have yet to reach consensus on 2025 spending levels, and Congress is eyeing a stopgap measure amid House-Senate deadlock on a reconciliation package
“In this environment, we think commercial space companies are likely best-insulated to outperform,” Canfield’s report noted, highlighting particular opportunities in space-based communications and intelligence sectors. “We expect government spending to support a broad range of suppliers in communications and intelligence.”
The analysis suggests that rising U.S. debt levels and renewed focus on deficits will accelerate DoD’s shift toward commercially developed solutions. “While SpaceX looks poised to capture significant amounts of upside from shifts in acquisition mix, we think a range of other companies can also benefit from greater risk-reward trades,” he said.
DoD and intelligence agencies are increasingly relying on commercial Earth intelligence and communications services from satellites — capabilities that “historically were achieved through the procurement of large, exquisite satellites, but we expect increasing mix-shifts towards commercially developed services,” Canfield wrote.
“Lessons from Russia’s invasion of Ukraine suggest modern forces will no longer be survivable without the advantage provided by space-based capabilities,” Canfield added. “In terms of spending, we expect space government growth meaningfully reaccelerates through the decade as force structures modernize to do more with less, and governments work to drive deficit reductions.”
