For the past decade, investors were expecting smaller satellites to lower launch costs, accelerate deployment, and increase access to orbit. Investment accordingly focused on the miniaturization of satellites.
As space systems become increasingly tied to AI, defense, communications, and real-time computing, investors are raising the same question: will the next phase of the space economy favor low-cost, distributed networks, or shift toward fewer, high-capability platforms designed around power, processing, and persistent performance?
From Miniaturization to Mission Capability
At first, miniaturization dramatically reduced the cost of reaching orbit, but it also introduced numerous new tradeoffs. Reduced size limits overall payload functionality, resulting in a lack of processing power, endurance, and capability for more demanding applications.
The miniaturization era was defined by two major developments. CubeSat, a standardized nanosatellite roughly the size of a large coffee mug (around 10x10x10 cm), was originally designed for academic research and has since democratized access to orbit by lowering the cost and complexity previously required to build and launch a satellite, according to NASA (August 6, 2024).
Instead of relying on a single, large satellite, operators began deploying hundreds to thousands of small, interconnected LEO satellite constellations. By connecting many nanosatellites closer to Earth, these systems reduce signal latency while delivering more resilient and widespread global broadband coverage at a fraction of traditional costs.
Nanosatellites and LEO constellations have made space more accessible than ever. However, as mission requirements grow more demanding, the constraints of miniaturization become harder to ignore.
The Constraint No One Talks About: Power
Unlike on Earth, power is a hard constraint in orbit. There are only two real power sources: solar panels or nuclear systems.
While solar is the dominant choice, it comes with fundamental limitations. The farther a satellite is from the sun, the less energy it generates — on Mars, a satellite gets roughly 40% of the Earth's solar intensity; on Jupiter, it's about 4%, per Marspedia (November 5, 2024). To get more power, satellites need larger arrays, which means more mass, more drag, more deployment complexity, and a higher failure rate.
Power limitations can determine what a satellite can actually do. As satellites become more capable and mission profiles more ambitious, energy generation and management are emerging as critical enabling technologies:
- Advanced sensors and instruments: Require ongoing, sustained amounts of energy to operate continuously and at full resolution.
- Real-time processing and computing: Places growing demands on onboard power budgets, especially with AI inference in orbit.
- Communications bandwidth: Higher output requires more energy and scales directly with power. The gap between what small and larger satellites — and what a high-capability system can deliver — is significant.
The Rise of High-Capability Orbital Infrastructure
The shift toward larger, high-capacity satellites wasn't the result of a single breakthrough. Rather, it was several technologies maturing around the same time. Together, they have made building large, powerful satellites function more like infrastructure than hardware.
Instead of relying only on miniaturized satellite constellations or singular large satellites, the future of orbital infrastructure will likely be a combination of both working together. Smaller satellites remain well-suited for area coverage, redundancy, and cost-effective data collection. High-capability, larger satellites are better suited for onboard processing, efficiency per unit of output, and overall throughput.
Power Output
The most visible gap between legacy and next-generation satellites is power. While older large satellites typically generated between roughly 5-15 kW, that was enough for their original missions. Next-generation platforms, per NASA's Technical Reports Server (2004), are being designed with roughly 20 kW to 100-plus kW. This is not just an incremental improvement — it changes the capabilities available, enabling an entirely new class of payloads, sensors, and onboard workloads.
The Cost Stack Has Changed on Multiple Fronts
Historically, the cost of large satellites was prohibitive. That is no longer the case, and the new reasons are structural rather than cyclical.
- Reusable heavy-lift rockets have significantly reduced launch costs. It has become economically viable to launch heavier, more capable platforms into orbit more frequently.
- Automotive-style manufacturing has been adopted by satellite builders, applying high-volume assembly processes and standardized components to drive down per-unit production costs.
- Improved battery systems help maintain capability during eclipse periods, enabling more persistent operations rather than intermittent ones.
- Higher-efficiency solar cells and large, deployable arrays have enabled greater power generation without proportional increases in mass or complexity.
From Hardware to Infrastructure
Space is increasingly evolving from a frontier technology theme into a distinct infrastructure asset class. Satellites are no longer isolated pieces of hardware performing a single task — they deliver consistent communications, Earth observation, navigation, defense, and data services, and increasingly operate more like systems than instruments.
As demand grows, orbital architecture is beginning to resemble the critical infrastructure layers that power our modern economies: energy grids, data centers, and telecommunication networks. The question is no longer whether space is infrastructure, but what kind.
Strategic Implications: Defense and AI
Defense applications represent one of the more durable demand drivers for capability advancement in the space economy. Unlike commercial applications, where adoption curves are influenced by market timing and price sensitivity, defense requirements are dictated by threat environments, national security imperatives, and foreign relations. Lower launch costs, higher power output, and increasingly affordable manufacturing have made new mission profiles viable.
The next-generation mission defense architecture requires large, power-intensive satellites capable of ongoing surveillance, real-time tracking, and autonomous tracking. Due to the nature of these missions — continuously high-bandwidth communications and sustained onboard processing workloads — small satellites can't support the level of performance required.
Intelligence, surveillance, and reconnaissance (ISR) demands continuous high-resolution data collection, which is power- and processing-intensive. Persistent, ongoing surveillance requires platforms that maintain uninterrupted coverage, not a system that passes over a target periodically and downlinks data later. For secure communications, these systems require resilient, high-bandwidth links that are resistant to jamming and interception — capabilities that require ongoing power and payload sophistication legacy small-satellite architectures were never designed to support.
AI in orbit isn't just a feature; it's increasingly the architecture. As AI inference workloads increase, the option for processing data in orbit rather than sending it to Earth is becoming increasingly compelling. High-capability satellites with sufficient onboard compute can run models directly in space, reducing latency, cutting bandwidth costs, and enabling faster autonomous decision-making across defense, intelligence, and commercial applications.
The mission requirements were never in question. What changed is that the economics now make them viable.
Growth in the space economy is broadly accessible, but exposure and durable value are not the same thing. In this environment, allocation may be less about gaining exposure to the space economy generally, and more about identifying where concentrated value is most likely to emerge. The more precise question for capital allocation is not which companies are participating in the space economy, but which ones are positioning themselves where capability concentration is likely to occur. Mission criticality, switching costs, and technical barriers will, in our view, make those positions difficult to displace.
The Investor Dilemma: Finding Where Value Concentrates in the Stack
As launch capacity expands and small satellite markets become increasingly crowded, investor attention may shift from miniaturization to mission-critical infrastructure. Attention is beginning to move up the value chain, toward the capabilities that determine whether a satellite can actually perform under real mission conditions.
Now, the infrastructure layer matters more than the delivery mechanism. The components that define durable value include onboard compute, power systems, AI-enabled payloads, mission-critical networks, and defense-grade infrastructure. These are not commodity inputs; they are capabilities that determine whether a satellite can support complex, persistent workloads, communications at scale, surveillance data processing, and autonomous operations in orbit.
The distinction will likely shift from which companies are building satellites to which can handle load-bearing capabilities within a broader system. In a maturing market, pricing power, switching costs, and long-term contract value tend to concentrate.
Strategic Considerations for Investors
The space economy's trajectory is compelling to investors, but the gap between technical potential and broad adoption has historically been wide, and the space sector is no exception. Before deploying meaningful capital, several structural risks demand investors' attention.
Adoption rates, cost-to-performance trade-offs, regulatory uncertainty, technological gaps, and increasingly congested orbits may all influence how quickly high-capability systems scale. Systemic, regulatory, and geopolitical considerations must also be taken into account before deploying any meaningful capital.
- Cybersecurity vulnerabilities: The American space industry lacks a single, unified cybersecurity regulator, leaving operators subject to multiple regulatory requirements, agency-specific standards, and contractual obligations. The space sector has seen a rise in cyber-related threats, per The Record (August 18, 2023); a satellite network attack can interrupt communications across multiple regions.
- Orbital congestion: There are tens of thousands of tracked debris objects and over half a million untracked fragments larger than 1 cm, creating a growing risk as constellations continue to scale. A self-sustaining collision cascade is a long-range risk that is already causing operators to increase their investments in collision avoidance. Debris removal will be expensive if it becomes necessary.
- Orbital slot competition: This represents a medium-term regulatory risk. Increased competition could create bottlenecks and chokepoints for new businesses and lead to legal disputes between companies.
These risks are not singular in origin; they span systemic, regulatory, and geopolitical considerations. That level of complexity matters to investors because structural resilience, not just technical promise, will determine which systems and operators endure and become profitable. In a market moving this quickly, in our view the companies best positioned to scale will be those that can navigate the full stack of challenges, rather than a single layer.
Conclusion
The space economy isn't standing still. What first started as a race to miniaturize technology has become a race to maximize performance. AI, defense, and real-time computing are reshaping the importance of powerful satellites. The next era will, in our view, reward those who understand where capability concentrates, where infrastructure becomes indispensable, and those who look beyond the initial launch.
Artificial intelligence, defense systems, and real-time computing are not peripheral trends — they are driving demand for the very architecture that high-capacity satellites were designed to support. The most consequential missions of the coming decades will require persistent performance, reliable power generation, and increasingly sophisticated onboard intelligence. These requirements are unlikely to ebb and flow with market cycles; instead, in our view, they are poised to compound as geopolitical competition, national security priorities, and global connectivity demands continue to intensify.
Space is no longer simply a frontier technology investment theme. It is becoming a distinct infrastructure asset class with durability, mission criticality, and barrier-to-entry characteristics that sophisticated investors recognize from other long-duration infrastructure categories.
In our view, the biggest developments in this market will not announce themselves loudly — they will appear in contract structures, payload specifications, power budgets, and a consolidation of mission-critical capabilities into the hands of a small number of operators. Investors who recognize the signals early may benefit from the next phase of the space economy that actually delivers.