Investors should choose carefully when investing in the outer space “goldrush” because it’s a tough, capital-intensive business, according to Citigroup. Designing survivable aircraft isn’t easy and it is expensive to deploy spaced-based hardware, analyst Jason Gursky said in a note Monday. He prefers business models that have demonstrated the ability to quickly ramp up revenue or provide “picks and shovels” to others. “In a way, space feels like the opportunity presented by the California gold rush – lots of risk, but plenty of potential upside for those that find the special nugget,” he wrote. Citigroup is constructive on the outlook for space-based activity. It expects space to become a trillion-dollar industry by 2040, growing at a 5% compound annual growth rate (CAGR) over the period, thanks to government space budgets, satellite industry growth and new applications and sub-specialities. Yet there are areas of near-term growth that will exceed these levels, such as the forecasted 20% year-over-year growth in space-related spending by the U.S. Department of Defense in fiscal year 2024, Gursky said. Since governments are likely to be the enduring customers, those contracts should be “front and center” in any business plan, he added. Right now, Citi believes the best space-related investment is Planet Labs . The firm initiated coverage of the stock on Monday with a buy rating. It also initiated coverage of Rocket Lab and Canadian space technologies company MDA , but with neutral ratings. PL YTD mountain Planet Labs year-to-date performance Planet Labs is a provider of global, daily satellite data. The company’s revenue should grow at 29% CAGR through fiscal year 2026 it’s forecast to begin generating cash in 2026, Gursky said. “We like the company’s positioning in Earth Observation, a market in which Citi expects low teens growth, and its near-term emphasis on more reliable government customers,” Gursky said. He also anticipates that eventually adoption rates from commercial customers will accelerate. “By our estimate, the company could generate roughly $2B in revenue should every public company and all governments purchase products and services at the run rate of existing customers,” Gursky added. In fiscal year 2023, the company reported $191 million in revenue, he noted. “In our view, this demonstrates the opportunity set in front of the company and suggests there is a long tail of growth ahead of it – particularly if the company is successful in continuing to drive annual contract values higher as it bolsters its analytics products and customers find more value in the company’s offerings as a result,” Gursky wrote. His 12-month price target of $6 implies nearly 39% upside from Tuesday’s close. Another way to play the theme is to look at incumbent aerospace and defense names that are committed to their space business, according to Citi. Citi has a buy rating on Lockheed Martin and neutral ratings on Northrop Grumman and Raytheon Technologies . “After all, a rising tide is likely to raise all boats and these companies are less risky given their balance sheets and proven experience in successfully launching both manned and unmanned spacecraft to any number of orbits,” Gursky said. — CNBC’s Michael Bloom contributed reporting.