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Shares of Rocket Lab (NASDAQ: RKLB) have pulled back sharply over the past week, closing Monday, Jan. 26, nearly 20% below its recent all-time high. The sell-off came despite continued momentum across the aerospace and defense sector and a recent successful Electron mission.

As MarketBeat has noted repeatedly, Rocket Lab’s long-term valuation hinges heavily on the successful development of its medium-lift Neutron rocket. Neutron represents a step-change opportunity for the company, opening the door to larger payloads, higher-margin missions, and deeper exposure to defense and national security contracts. Unsurprisingly, any headline tied to Neutron tends to move the stock aggressively.

That dynamic was on full display on Jan. 21, when Rocket Lab disclosed that a Stage 1 tank ruptured during qualification testing at its Long Beach, California, facility. The market’s initial reaction was fear and panic, and the stock dropped more than 10% in after-hours trading. Days following that event, the stock has failed to hold a bounce, selling off significantly from recent highs. 

The news and recent price action have likely left some investors wondering whether it is overblown, fundamentally altering, or just routine testing.

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A Routine Setback in Neutron’s Development

According to Rocket Lab, the rupture occurred during a hydrostatic pressure test, part of the qualification process designed to push structures beyond their intended operational limits. Notably, the company emphasized that such failures are not uncommon during development testing and are a deliberate part of validating safety margins.

Rocket Lab noted that no damage occurred to surrounding facilities and that the next Stage 1 tank is already in production. Neutron’s development program remains active and ongoing.

What investors are watching most closely now is whether the incident results in another delay to Neutron’s maiden flight, currently targeted for the first half of 2026. Rocket Lab did not provide an immediate update on timing, stating instead that it will assess the impact and deliver a schedule update during its fourth-quarter 2025 earnings call in February.

For a stock trading near record highs, the absence of near-term clarity was enough to spook momentum-driven investors, at least temporarily.

Progress Continues as Key Hardware Arrives

While headlines focused on the testing failure, Rocket Lab simultaneously made progress elsewhere in the Neutron program. The company confirmed that its Hungry Hippo fairing, which has already cleared qualification testing, recently arrived at the Virginia launch site for the Neutron Rocket.

Engineers will complete inspections in the coming days before preparing the fairing for additional pre-launch testing at Rocket Lab Launch Complex 3. The delivery of the fairing underscores an important point: development is moving forward on multiple fronts, even as individual components go through expected testing hurdles.

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Analysts Largely Unfazed by the Sell-Off

Wall Street’s reaction has been notably calmer than the market’s initial response. Several analysts characterized the test failure as routine and necessary within the context of launch vehicle development.

Bank of America reiterated its Buy rating on Rocket Lab, expressing continued confidence in Neutron’s long-term prospects. The analysts at BAC also raised their price target to $120 from $60. TD Cowen made a similar move. On Jan. 22, the firm maintained its Buy rating on RKLB and raised its price target to $100 from $60, noting that the event was standard qualification testing rather than a fundamental setback. The analyst also highlighted that no facility damage occurred and that replacement hardware is already in production.

Taken together, the pullback appears driven less by any deterioration in Rocket Lab’s long-term thesis and more by short-term uncertainty tied to a headline-sensitive Neutron update.

With the stock up roughly 1,580% over the past three years, bursts of profit-taking following negative or ambiguous headlines are not unusual, particularly when they involve the company’s most critical growth catalyst. But overall, as Neutron’s development continues, and key hardware arrives on site, the recent sell-off may ultimately prove to be more noise than signal.

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