The Space Economy Achieves Lift-Off

By Michael Barr

Space-based industry is much more down-to-earth than you might think—and every day it touches more and more of our lives.

Today’s CIO Weekly Perspectives comes from guest contributor Michael Barr.

When supply chains and logistics are stretched beyond their limits here on earth, investing in the space economy can seem like an indulgent misallocation of capital.

In fact, space-based industry has a critical and fast-growing role in solving some of the biggest and most pressing challenges closer to home—including making our supply chains more resilient, producing enough food for the world, enhancing connectivity in an increasingly online economy, and helping to measure and manage climate change.

Why has space-based industry suddenly become so important, and how is it already changing our lives?

Commercially Viable

For more than 50 years, space was the domain of a handful of governments and research agencies. Sending ever more complex and expensive hardware into orbit demanded ever more expensive risk management, rocketing launch costs north of $100 million in some cases.

Elon Musk founded SpaceX in 2002 with a goal to bring launch costs down, and it sparked a revolution. According to the Center for Strategic and International Studies, all-in launch costs are now 10 times lower than they were 20 years ago. When $2 million or $5 million is at risk, many more commercial businesses can afford to consider the opportunities space opens up for them.

In addition, technological advances have increased what they can do from space. With 10 times the bandwidth, with data latency down from 300 milliseconds to just three milliseconds, and with 100 times better lens resolution, for example, satellites can do much more than broadcast TV and track the weather.

Infrastructure, Enablers, Applications

To delineate the investment opportunity, we think the evolution of the smartphone economy is a good analogy.

That began with the basic infrastructure: Smartphone manufacturers are analogous to businesses like SpaceX and Rocket Lab (RKLB), the largest commercial launch providers, or to companies that manufacture satellites and their components.

Next came the technology enablers: the app stores that were the smartphone’s new interface. For the space economy, we see an equivalent in the cloud- and edge-computing infrastructure, the remote sensors and the advanced cameras and lenses that enable new in-orbit opportunities for earth-bound (as well as space-based) businesses.

And those businesses, which exploit the new space infrastructure and technology, are the equivalent of the smartphone apps, giving us the third pillar of the investment opportunity, and the space economy’s biggest source of potential growth.

Killer Apps

That brings us back to today’s big challenges and the killer apps that space brings to solve them.

Satellite technology can’t open Ukrainian ports or train more truck drivers, but the combination of more satellites, better lenses, faster data speed and bigger datasets enables logistics decisions to be made with a high-resolution, global view in real time. That can make supply chains more efficient day-to-day, but it can also enhance responsiveness when there is disruption, whether due to conflict or to a cargo vessel blocking the Suez Canal.

Similarly, while we can’t open up Ukraine’s grain market from space, over the longer term, precision agriculture informed by satellite insights can make food production more widespread and efficient. Enhanced sensors can gather data not only on weather, but also on the quality, temperature and moistness of soil, which can be fed into automated planting systems that sow seeds in the right place and the right time for maximum yield. This can minimize costs, but also water and fertilizer usage.

Supplementing tower-and-cable technology with satellites also makes it much easier and cheaper to spread connectivity worldwide, even to the most isolated locations. Mobile communications have already transformed the economies of many emerging countries; cost-effective satellite communications can spread those benefits. Ride-sharing and ride-hailing apps have already built huge businesses using space-based global positioning technology; expanding connectivity will make it possible to make those services truly global.

Acting as backup for cellphone tower dark spots, satellite communications with low-latency data transmission can also provide the seamless connectivity necessary to make the Internet of Things a reality. For the first time, for example, owners of remote facilities such as offshore windfarms or oil and gas pipelines will be able to receive constant real-time data on performance and maintenance requirements.

The global nature of our climate and environmental challenges creates a special niche for space-based solutions. Deforestation and changes to sea levels and polar ice caps have been tracked from space for years, but wider satellite coverage, enhanced sensors and high-resolution lenses are now making it possible to measure a whole range of environmental changes at a more granular level.

Companies can now verify, firsthand, suppliers’ claims about the sustainability of their raw materials—by spotting deforestation for palm oil production in specific locations, for example. Our growing ability to measure greenhouse gas emissions from space is revealing just how much we were undercounting emissions in the past, but it also creates opportunities for technologies and data analytics that bring accuracy and fairness to carbon regulation, pricing and taxation.

Possibilities

If the possibilities seem almost endless, that’s because space infrastructure and technology is not only creating new space industries, but expanding the potential of existing earth-bound businesses.

Today’s space economy is worth around $400 billion, and more than 50% is “legacy” activities such as broadcasting and government services. Industry analysts estimate that it could grow to about $1.2 trillion by 2035, almost three-quarters of which would be new commercial activity, including all the possibilities described above.

The space economy has left the launch pad. Luckily, you don’t have to go into orbit to benefit from it—or invest in it.

In Case You Missed It

• U.S. Producer Price Index: +0.8% in May month-over-month and 10.8% year-over-year
• U.S. Retail Sales: -0.3% in May
• NAHB Housing Market Index: -2 to 67.0 in June
• Federal Open Market Committee Decision: The FOMC increased its policy rate by 75bps
• U.S. Housing Starts: -14.4% to SAAR of 1.55 million units in May
• U.S. Building Permits: -7.0% to SAAR of 1.7 million units in May
• Bank of Japan Policy Meeting: The BOJ made no changes to its policy stance

What to Watch For

• • Tuesday, June 21:
  • Wednesday, June 22:
    • Japan Purchasing Managers’ Index
  • Thursday, June 23:
    • Eurozone Purchasing Managers’ Index
    • U.S. Purchasing Managers’ Index
    • Japan Consumer Price Index
  • Friday, June 24:

– Investment Strategy Group

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types.

Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Specific securities identified and described do not represent all of the securities purchased, sold or recommended for advisory clients. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.

© 2009-2022 Neuberger Berman LLC. | All rights reserved

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.