As tens of thousands of satellites are launched into orbit over the next several years, operators will need to buy a lot of semiconductors.
The space race between SpaceX, Amazon.com and others is heating up - and that may spell opportunity for investors.
While the imminent SpaceX initial public offering is commanding plenty of attention right now, there are already ways to get in on the space boom beyond public satellite and launch plays, according to analysts. Truist Securities' William Stein thinks that some chip companies stand to benefit from the satellite rush, which could power everything from fast imaging to remote internet access.
"News flow about increasingly frequent satellite launches and increasingly useful LEO satellite-based network services are rightly drawing investors' attention," Stein wrote in a note to clients this week, referring to low-Earth-orbit satellites.
The market for LEO-related semiconductors is still pretty small, at just $3.5 billion. By 2035, though, the market could nearly quadruple to $13.5 billion, Stein said.
While Truist picked out nearly a dozen chip makers that could benefit from that growth, it said Macom Technology Solutions $(MTSI)$ stands out. The chipmaker's LEO-related sales could grow from some $36 million currently to $140 million by 2035, according to Stein's analysis, which he deemed to be conservative. Stein also said the firm's LEO serviceable available market could grow more than 360% by 2035.
Macom shares are up by nearly 166% over the last 12 months. A Mizuho analyst said in January that the stock had already gotten a boost from investors looking to leverage growth in the satellite market.
The number of satellites lying 100 to 1,200 miles beyond the Earth's surface is expected to increase from about 11,000 presently to roughly 130,000 by 2035, Stein noted. And that number may dramatically understate the potential for space to get a lot more crowded.
SpaceX plans to launch up to 1 million satellites, meant to function as data centers, over an undetermined period of time. The company also expects to launch as many as 20,000 Starlink satellites, according to executives.
Amazon (AMZN) also plans to launch several thousand satellites into LEO over the next decade, while Jeff Bezos's Blue Origin - which operates independently from Amazon - and the startup Starcloud are slated to launch tens of thousands of space-based data centers.
The average satellite will need about $50,000 worth of semiconductors, while more complex spacecraft will need more than $100,000 worth, Truist's Stein said. Semiconductors will also be necessary for other related technology, such as user terminals.
During a Feb. 5 earnings call, Macom CEO Stephen Daly said there is an "incredible" amount of investment in LEO constellations meant for direct-to-device services. He also said Macom is involved "on some level" with all current major LEO constellations and several up-and-comers trying to make their first satellites.
"Every customer is doing something a little different," Daly said. "Our content varies dramatically from customer to customer, but we have just a really rich treasure trove of technology we can offer our customers here."
Besides Macom, TTM Technologies, Microchip Technology and STMicroelectronics could also see relatively meaningful benefits from the LEO business, according to Stein. STMicroelectronics is a key supplier for SpaceX's Starlink satellites.
Intel will also benefit through its stake in Altera Labs, but due to Intel's size, the LEO impact won't be so meaningful, Stein noted. Similarly, Qualcomm, Texas Instruments and Advanced Micro Devices are also too large for LEO to make a noticeable impact relative to the rest of their businesses, he added.
Another way to play
Semiconductors aren't the only way to play the LEO satellite boom. Many of the companies manufacturing materials for both satellites and the rockets that launch them are also public.
That's part of the ethos of the Tema Space Innovators exchange-traded fund NASA, launched earlier this week under the "NASA" ticker symbol. Yuri Khodjamirian, chief investment officer at Tema, describes the ETF as a space "pure play" giving investors access to both highflying stocks present in other space-focused funds - such as Planet Labs, which is up 1,031% over the last 12 months - as well as several stocks typically left out of rival ETFs' holdings.
Tema's ETF includes Sphere Corp, the Korean manufacturer that supplies major aerospace companies with alloys like nickel. The company last year said it has a contract reportedly valued at 1.544 trillion won, or more than $1 billion, supplying SpaceX through the end of 2035.
There's also Filtronic, a British radio-frequency components company that supports LEO constellation expansion, and Massachusetts-based CPS Technologies, which provides heat-resistant materials for satellites.
The NASA ETF also helps investors get exposure to SpaceX ahead of its planned IPO through a special-purpose vehicle, according to Tema.
Suppliers like Sphere have growth rates that "in theory should be faster, and are faster, than the launch companies," Khodjamirian told MarketWatch, adding that their "risk levels are lower" than rocket makers.
Sphere shares are up almost 210% so far this year and 560% over the last 12 months, while Filtronic's stock has increased 107% over the last year. Shares of CPS Technologies, which trade at less than $4 apiece, are up 170% over the last 12 months.
