SLS Cancellation Sparks Sector Upheaval: Boeing and Lockheed Martin Face $82B Contract Meltdown

The U.S. space sector is bracing for seismic disruption as the White House’s 2026 budget proposal targets NASA’s Space Launch System (SLS) for cancellation, threatening an estimated $82 billion in Boeing and Lockheed Martin contracts. The move accelerates the shift toward commercial providers like SpaceX and Blue Origin, while exposing legacy aerospace giants to existential risks. Investors should treat Boeing (BA) and Lockheed (LMT) as high-risk plays—here’s why.

The Contract Tsunami: $82B at Stake

The SLS cancellation directly imperils Boeing’s role as the prime contractor for the rocket’s core stage and Lockheed’s responsibility for the Orion spacecraft. Together, these contracts represent decades of revenue streams tied to NASA’s Artemis program. If Congress approves the budget, $82B in projected SLS/Orion funding could evaporate by 2026, slashing cash flows for both companies.

The White House’s pivot to commercial launch systems—led by SpaceX’s Starship and Blue Origin’s New Glenn—squeezes BA/LMT’s dominance. Unlike their private rivals, these public firms lack the agility to pivot quickly to new markets. For context:

Congressional Gridlock = Delayed Pain, Not Salvation

While the budget proposal paints a bleak picture, congressional pushback could delay—or dilute—the cuts. Lawmakers from SLS/Orion-dependent states (e.g., Florida, Alabama) will fight to preserve jobs and pork-barrel funding. However, this delay is a double-edged sword:

1. Uncertainty Drags Valuations Down: Investors will penalize BA/LMT for the risk of a multi-year earnings cliff.
2. Impoundment Threats Escalate Risks: The Office of Management and Budget (OMB) has signaled it may withhold funds even if Congress balks—a move that could trigger lawsuits but accelerate funding cuts.

The Geopolitical Wildcard: China, Congress, and Cost Overruns

Critics argue the SLS cancellation risks ceding lunar leadership to China, which aims for a crewed Moon landing by 2030. This political tension could force Congress to compromise—e.g., funding SLS through 2028 but slashing future missions. Yet even a “half-win” would mean:
- Contract Trimming: Reduced SLS launches post-Artemis III (2026) would shrink BA/LMT’s order backlog.
- International Fallout: Partners like ESA and JAXA, which invested billions in the Lunar Gateway, may demand cost-sharing adjustments, further pressuring LMT’s bottom line.

Why Short BA/LMT Now?

The math is stark:

1. Valuation Squeeze: BA trades at 8.5x forward earnings, near its five-year low, while LMT’s P/E of 15x still overvalues its space division’s future.
   

2. Earnings Downgrades: Analysts have already slashed 2025 EPS estimates by 10–15% for both firms, with SLS cancellation risks factored in. Q2 earnings (July/August 2025) could trigger further downgrades if contract losses materialize.

3. Short Squeeze Potential? Unlikely: With SLS’s fate unresolved, institutional investors are more likely to hedge downside risk—making BA/LMT short candidates, not long bets.

Investment Play: Exit Before Q2 Earnings

The path forward is clear:

• Short BA/LMT: Capitalize on near-term volatility as earnings reports crystallize SLS-related losses.
• Avoid New Positions: Wait until post-budget clarity (early 2026) or until BA/LMT demonstrate cost-cutting or new contract wins.

The SLS cancellation isn’t just a budget line—it’s a tectonic shift. Legacy aerospace stocks are now hostages to congressional drama and commercial competition. For investors, the writing is on the launchpad: exit now or brace for a bumpy ride.

Data as of May 16, 2025. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.