Edmund Shing
Hello, and welcome to the latest podcast from BNP Paribas Wealth Management. I am Edmund Shing, Chief Investment Officer. With me I have my good friend and colleague Stephan Kemper from Frankfurt, our Global CIO for equities based in Germany. Hello there, Stephan.
Stephan Kemper
Hi, Edmund. Thanks for having me.
Edmund Shing
Well, it's a pleasure. Now, what we're going to talk about today, Stefan, is quite an interesting theme, I think, and I think you do too, which is the space economy. Clearly, of late has been taken front stage thanks to the IPO of SpaceX, the recent launches of Starship, the aptly named giant rockets that SpaceX will use to launch up to sixty satellites at a time, and clearly we've entered a new space era. And I guess the difference is in the old days, pretty much the biggest actors were purely state actors, whether that be NASA in the US, or of course the Russian space programme or even the Chinese space programme, all state sponsored.
Today we see the entrance of the private sector, so now we can actually think not just of it as a massive reputation building exercise for countries, but much more commercial ventures. And I think that's what's very exciting. And so, Stephan, you wrote a recent equity insights report entitled “To infinity and beyond: the economics of space”. Now, in that, you argue that we we're witnessing a major transition. So, what changes? What has changed? Okay, yes, we've got SpaceX, but what really has changed in making the economics of space more interesting for the private sector today?
Stephan Kemper
Well, I think it's really an exciting time to be (excuse the pun) “looking at space” nowadays, and when we look at it, it really comes down to mastering the economics of gravity. Not only when we are standing on the scales each and every morning, but as I said, also for rockets, for the space economy. As for decades, the relationship with space was basically defined by just national prestige, funded by hundreds of billions of taxpayer dollars, without any commercial business model other than beating the rival. So, during the nineteen sixties, the space race, the U.S. directed over four percent of its federal budget towards lunar exploration, and the problem was that launch vehicles were basically just treated as disposable, single use assets, leaving the industry effectively trapped in an economically stagnant cost plus paradigm, where the barrier to entry would add like a prohibitive five hundred thousand dollar per kilogramme to be launched into space. And the transformation towards an orbital economy, which we are seeing today, really began when commercial innovators mastered the proposal of landing and also the reuse of orbital boosters. And that was transforming spaceflight from bespoke manufacturing into well routine logistics, I think you can already call it. And this was a trigger in the collapse of launch costs, driving prices down by more than 95% to well below 2,000 dollars per kilogramme launch costs.
Edmund Shing
So that's a massive deflation in the cost, and obviously opens up the economics dramatically. And as you said, that really do at least in part firstly to private enterprises being at the heart of these launch vehicles rather than the State. But secondly, of course, as you said, the reuse of components, which up to now really just was not the case.
Now, I guess what helps what helps in terms of the launches is also the payload, because at the end of the day, you know, each as you said, even if the price per kilo comes down, it's also a question how many kilos you want to launch at the time. And I guess here that's also very important because the actual payloads themselves, the weight of each satellite in this case, I guess is getting smaller, isn't it?
Stephan Kemper
Yes absolutely. In space, it’s like here on Earth, you get like more power into a given amount of mass, and the digital revolution really catalyzed this rapid miniaturization of spacecraft hardware as well. Today, high-performance so-called CubeSats are the size of a milk carton, and they deliver superior computational throughput at a fraction of historical costs. And there's a fascinating economic principle at play here akin to the Jevons paradox, because it has become so much cheaper to reach orbit.
Those lower costs actually drive a massive increase in consumption, meaning we are launching vastly more mass into space than before. And just to give an idea how significant this change is, if you consider deploying a modern broadband constellation of roughly four thousand satellites, well, during the expendable rocket era, lifting that payload would have incurred like 50 billion dollars in flight expenses, and that would have basically killed the idea even before the first launch would happen. But now with reusable rockets, that identical mass can be deployed for approximately two billion dollars, and that is much more affordable, much more sensible, also from a commercial standpoint.
Edmund Shing
Okay, so from an investor standpoint, if we think about space, clearly the first items that come to mind are the rockets, the launch vehicles, and then satellites. But you’re obviously thinking broader than that, a much more deeply integrated value chain. So, what other elements of this value chain are there, aside from the launch vehicles, the rockets, and obviously the satellites used today for telecoms, but maybe used for data centres in the future? What else should we be thinking about?
Stephan Kemper
Yes absolutely. It's even before the rocket is put onto the launch pad a lot of things need to happen. The launch, a lot of industries need to work hand in hand, stretching from terrestrial mines to obviously then reaching the Low Earth Orbit or LEO, as it's called. The architecture begins with critical raw materials. Spacecraft require structural metals like aluminium, titanium, and specialised cryogenic steels, which offer maximum strength-to-weight ratios even under severe mechanical loading. Because if we move such a launch vehicle, the vehicle itself, but also the propulsion engine, need to endure temperatures exceeding 3,000°C, and that's driving demand for refractory metals and high temperature superalloys, which consist of tungsten, nickel, cobalt, niobium, or rhenium, for instance.
And once those materials are cast, the supply chain funnels into engineered propellants, which comprise of up to 90% of the rocket's total mass. And the industry there is structurally transforming from refined kerosene to liquid methane, which burns cleanly and also drastically reduces refurbishment times for those rockets. And they can already see, or you can guess that industrial gas providers also capture sustained revenue through engine-static test firing cycles and supplying, obviously, also the noble gases like xenon for satellites at the end of the day once we have reached space.
Edmund Shing
Okay, so what about the actual computing power that we need to put on board? Clearly, space isn't what we would call a friendly environment for the standard electronics. What special electronics do we need to have?
Stephan Kemper
Yes, well, in fact, it's not friendly. It's actively hostile because beyond Earth’s atmosphere, hardware is really bombarded by trapped high energy particles within the Van Allen radiation belts, and that's inducing rapid semiconductor failure if we would just use what the ones we are using here on Earth. So the orbital economy really relies on specialised chipmakers to manufacture radiation-hardened microcontrollers and also optical modules.
And electronics systems also rely on rare earth like neodymium or precision actuators like gallium and tantalum and high purity copper, which form the circuit of power distribution units within such a satellite. So as I alluded before, long before a rocket even clears a launch pad you have a massive terrestrial industrial base, and they those guys are really generating revenue from those space endeavours.
Edmund Shing
Okay, so let's look downstream. We have talked a lot about the equipment that's needed, but let's think now about the actual services being delivered. Obviously, we've seen massive capital inflows highlighted by, not obviously, the SpaceX IPO in the middle of this year, 2026 and then the acquisition of xAI to push orbital data infrastructure, i.e. data centres in space. But where is the actual money being made in orbit today?
Stephan Kemper
At the top of the industrial chain, if we can call it, we have the satellite operators. So today, roughly 80% of the entire space economy's revenue is generated by those downstream satellite operations and the terrestrial ground equipment and everything that comes along with it. So one massive driver is what we call positioning, navigation, and timing, or PNT, and that infrastructure accounts for over three hundred billion annually across added value services and specialized hardware, so quite significant.
And PNT signals are the silent utility coordinating modern civilization. They are synchronizing cellular networks, balancing power grids, and clearing high frequency global financial transactions. So without that, sending an order via your online broker would still feel like sending a fax. So we really needed to have this very fast communication, and then obviously hand in hand comes the broadband connectivity. And in broadband connectivity, those LEO mega constellations bypass legacy ground infrastructure. So operating at altitudes between one hundred fifty to two thousand kilometres, those constellations slash latency to 20 to 50 milliseconds, and that's what things can happen so fast nowadays, even with mobile internet. And then we have the commercial satellite broadband, which connects remote schools, offshore platforms, and effectively entire maritime fleets, even airplanes nowadays. Meanwhile, Earth observation networks also provide an unblinking analytical layer as even us in the financial industry analysts utilize orbital imagery to quantify customer traffic at retail chains and insurers evaluate property damage across disaster zones and so on, so on. So we can really see when it comes down to Earth observation, there's also a lot of business to do.
Edmund Shing
Okay, that sounds very commercial, but at the end of the day, government is still heavily involved in space, particularly when it comes to defence and military applications. So how does defence fit into this new economy?
Stephan Kemper
Yes, well, defence is becoming… it was the main driver when we launched or when the space race was initiated, and it remains a vital part of the space economy just because, well, the orbital infrastructure is becoming more and more vital to the economies on Earth themselves. But then also, space is offering a lot of advantages for modern warfare, as we for instance can see in the advantages that Ukraine made over Russia when Russia lost the access to Starlink. And well, consequently, due to the importance, global government space expenditures reached a record of 135 billion dollars in 2024, and the U. S. are actually proposing to expand the space force budget. And yes, the U. S. Has their own space force, to a bit more than 71 billion dollars for the next year, in order to develop also some missile tracking architecture.
Europe as well is increasing the budget by 30% for the next three years, and China, as you indicated at the very beginning, are also catching up, saying they want to at least match the capabilities of the US. So you can see, in a sense, the space race is still on, also in the well, in terms of government and military spending.
Edmund Shing
Okay, so clearly there's a lot of capital flowing into the sector right now, and a lot of excitement. But with that excitement, you also hear a lot of shall we say flights of fantasy or science fiction. So how do we separate the real investment opportunities from science fiction?
Stephan Kemper
Yes, well, that is probably the most crucial thing that you need to distinguish, as you say, what are a real commercial ideas and what remains in the realm of fantasy. And we think that over the next decade, the space economy will evolve towards an active orbit operational system with a commercial logistics market, which is forming to service, refuel, and probably also locate ageing satellites, and this will extend the useful life of a lot of multi-million dollar assets.
That is probably the thing to focus on. And to give a few concrete examples, for instance, in manufacturing, the microgravity that we have in space is eliminating a lot of problems we have here on Earth, and this is enabling synthesis of advanced materials, which are probably impossible to formulate here on Earth, such as flawless optical fibres or complex bioprotic proteins. And even we can think about emerging space tourism, which is a sector which is obviously receiving a lot of critical commentary, but where we increasingly see that there is demand and that there is a proof of concept that this can work and that this can generate revenues as well. So there you can see, we have a few things which may sound a little bit science fiction, but can become real opportunities. But then, well, probably there a few things which will remain science fiction.
Edmund Shing
Okay, so what should we not believe then? What is not going to be achievable in the near future in your view?
Stephan Kemper
Well, I think probably the thing where there is a lot of speculation is proposals for asteroid mining, which is aiming to return industrial commodities or even stuff like gold to the Earth. I think those are and will remain economically unviable for the foreseeable future as the costs are way too high and that they would vastly outstrip the market value here on Earth. And then we also recently talked a lot, heard a lot about deploying gigawatt scale data centres in space, just to bypass the power constraints which we have here back on Earth.
But this again doesn't make a lot of sense when you just run the numbers because we would need to lift up to twenty thousand metric tons of servers, and this is presenting severe financial hurdles. So the cost to build a ten gigawatt data centre in space is still like threefold the one to build it here on Earth. And then also the logistics for one gigawatt of computer computational power or of data centre you need to launch at least one hundred fifty to two hundred Falcon 9 flights, and this doesn't add up. In so therefore, in the near term, I think space-based computing will remain focused probably on some edge processing directly aboard satellites, but certainly nothing more.
Edmund Shing
Okay, so let's conclude here then Stephan. For an investor looking at the space as a thematic today, how should they allocate capital?
Stephan Kemper
Well, I think the space industry is fundamentally a story of physical barriers yielding to industrial discipline and deflationary logistics. But it also remains a capital intensive and operational risky sector. Rockets still have the nasty tendency to blow up every now and then. And therefore I think picking individual winners among the more early-stage entrants, carries elevated risk when you want to do it on stock picking. And therefore, we think broad diversification across the value chain, most easily done via funds and ETFs, are representing a very prudent approach for most investors.
Edmund Shing
Great, thank you very much for your time today, Stephan. And thank you to our audience for listening to this podcast. For more on our series of podcasts, please like, share, and subscribe to our series. And please do look on the internet for our research, which you can find by searching under BNP Paribas Wealth Insights. Thank you, and until the next time, goodbye.