BAE Systems‘ (LSE:BA.) shares have massively outperformed the index since the pandemic.The company’s best known as one of the world’s largest defence contractors.
From fighter jets and naval vessels to cyber and intelligence services, the company’s long been a cornerstone of the UK’s aerospace and defence sector.
However, it’s also big in space technology. And space could be a big theme of 2026 following Elon Musk’s announcement that SpaceX would be exploring building data centres in space.
Impressive growth
Revenue at BAE’s grown steadily over the past five years, rising from £18.3bn in 2019 to a forecast £32.7bn in 2026. Operating profits have tracked a similar trajectory, and normalised earnings per share are expected to climb from 65p in the trailing 12 months to 83.9p in 2026.
The shares currently trade on a forward price-to-earnings (P/E) ratio of just over 20, giving a price-to-earnings-to-growth (PEG) ratio below two. That’s not cheap, but reasonable for a business with reliable earnings, high margins, and strong cash flow. Investors often value quality, and BAE’s quality.
A potential space leader
One of the key drivers of future appreciation is BAE’s growing footprint in space. Through acquisitions like Ball Aerospace and the expansion of its Digital Intelligence division, BAE now participates across the space value chain, from satellite payloads and RF sensing to on-board data processing and ground-based analytics.
Its work on the Azalea RF satellite cluster, launched via SpaceX, is emblematic of this capability.
There are broader trends at play here too. I’m no expert on all the roles different companies will play in the future, but I’m confident that BAE will benefit from a vibrant space industry.
Space-based data centres are just one part of this equation. For example, BAE produces radiation-hardened single board computers (SBCs) and modular space platforms. The company also offer a Space as a Service programme through satellite ride share.
Now, there’s no guarantee BAE would benefit from a growing space industry — especially when most of the ground action’s originating from the US and China. However, I’d expect a significant uptick as commercial enterprise leans on BAE’s years of expertise.
What’s more, I’m aware that SpaceX and associates would be the real leaders in space. But BAE can certainly lead in certain niches.
The bottom line
Is space reflected in the earnings forecast? I’m not sure. Net profits are forecast to reach £2.5bn in 2026, up from £1.95bn in 2024. And lots of this comes from predictable, defence-backed contracts. However, some of it may reflect increasing demand for space technologies.
More broadly, I think it’s an interesting investment opportunity. Nonetheless, it’s a little more expensive than I’d normally go for relative to its current forecasted growth.
I’d caveat that by saying analysts’ forecasts are normally pretty uniform or trajectory-based and are unlikely to include windfalls from burgeoning sectors like space.
Of course, investors should be mindful of risks too. Defence budgets can fluctuate with political priorities, and aerospace projects often face schedule delays or cost overruns.
All in all, BAE is worth considering. However, it doesn’t fit within my own typical criteria for an investment.
