AST Spacemobile Has No Competition.
Deep Dive
Ad: I made available 50 coupons to obtain lifetime access to my Tech Stock Goldmine course for $299 instead of $350. There are only 46 coupons left now. Use code PLTR at checkout.
Edited by Brian Birnbaum.
Special thanks to N. Montheith and Eric Santa (an alumni of my Tech Stock Goldmine course) for pushing me to analyse this company. It’s been worth it.
AST is building a network that will likely print billions of free cash flow practically overnight.
AST has no competition at present and is paving the way for an exponential increase in its free cash flow per share. As I will detail later, AST’s satellites are unique because they can provide direct-to-cellphone broadband connectivity to space, eliminating the need for specialized satellite phones (unlike Starlink). No other space company on Earth is remotely close to achieving this. And although SpaceX theoretically has the resources, I believe AST’s tech stack is specialized to the point of it being an impenetrable moat.
AST’s financials don’t yield much information because the company is essentially pre-revenue. However, each satellite AST deploys brings them one step closer to building a network that will suddenly explode with free cash flow. AST offers smartphone users 5G connectivity anywhere as long as they opt into SMS. AST has already deployed five fully functional Block 1 satellites and has MOUs (Memorandum of Understanding) covering 3B people, which, as we will see, are not just empty promises. Once they blow beyond 45-60 satellites, they can scale to hundreds of millions of end customers quickly.
Much like RocketLab, AST is pushing the limits of what we can accomplish in space. The Block 1 satellites are the largest ever deployed according to AST’s CEO, Abel Avellan, in the Q4 2024 earnings call:
As a reminder, our [Block 1 satellites are] each the largest-ever commercially deployed communication arrays low Earth orbit other than the International Space Station.
For context, our upcoming Block 2 satellites are more than 3 times the size of Block 1 satellites, measuring approximately 2,400 square feet.
AST has demonstrated an ability to iterate three curves simultaneously: its technology, its ability to navigate the regulatory landscape, and its ability to close deals with telecom partners. AST’s technology is hard to replicate, but even more so to bring to the world in a commercial context while abiding by regulations and getting on with telecom partners, who own the distribution. This organizational ability is evident in reading AST’s quarterly conference call transcripts backwards to Q3 2021.
As a result, I believe AST’s free cash flow production can evolve as depicted below. Beyond a critical number of deployed satellites, AST’s free cash flow likely surges from negative to billions in short order. 2.6B people are currently not connected to the Internet. AST can take all of that market as pertains to smartphone connectivity, further enhanced by the likely explosion of gadgets and networks connected to the internet over the coming decade–as AST’s tech can be used to send broadband connectivity to any device.
The above progression, while hypothetical, relies primarily on AST’s inimitable technology stack. AST’s technology solves the largest problem in telecommunications: sending strong and unmodified signals to many devices. Satellites have limited power and bandwidth. They either beam a weak signal to many devices or a strong signal to a few devices. This is made possible by a technology called beam forming, which works by applying delays to signals within a given spectrum across an array of antennas. By delaying signals at different antennas in an array, the wavefronts combine coherently in a specific direction, reinforcing the signal.
See AST CEO Abel Avellan’s comments during the Q4 2021 earnings call (AST’s first ever):
[We[ have created many of the key process designed to enable our seller broadband distant from the space. Included but no limited to the following: the ability to decide, build and produce the items that are the building block of our spacecraft.
The technology to enable our Phased Array to connect directly from space to regular and modified mobile phones.
The ability to control our system that can deploy a satellite with an aperture of 693 square feet into a cubic volume capable of use with multiple launch partners.
Unlike Starlink, AST’s satellites operate with standard cellular frequencies, which as previously mentioned is the key to frictionless onboarding of end customers. However, it’s extremely difficult, requiring, as depicted in the image below, satellites with an abnormally large surface area, along with navigating considerable regulatory complexity and managing interferences with other cellular networks.
Moreover, smartphones are not designed to receive signals from space. A regular smartphone transmits at a power level of about 200–250 mW (milliwatts), which is enough to reach nearby cell towers, but not so much a satellite in space. To establish a connection smartphones also have to transmit signals back to the satellite. Smartphones have small, omnidirectional antennas designed for terrestrial networks. These antennas radiate signals in all directions, making them inefficient for long-distance communication with satellites.
Building, deploying, and operating AST’s unusually large hardware is hard. But establishing direct and reliable connections with devices that are not designed to do so, while the satellite in question travels at the speed of a bullet, is an engineering marvel. Therefore, my impression is that AST’s technology stack is more than difficult to replicate, and even more so to operationalize. As of Q4 2024, AST has a portfolio of 3,500 patents, which fractionally illustrates the complexity of the task.
The second component of the thesis, beyond the technology stack, is process power. AST seems to wield quite an ability to iterate its technology, navigate regulations, and close deals with telecom providers. This innate organizational ability is what will likely enable AST to build its technological advantage into a real, world-class business–in essence, deploying better satellites and serving more customers over time in a way that’s increasingly harder to replicate.
AST’s process power is evidenced by a series of feats that stand out since IPO, equating to a wide cost-advantage.
First, the total number of subscribers under MOU have ballooned from 1.8 billion in Q4 2021 to 3 billion in Q4 2024. These are not just void documents, as evidenced by the evolution of their relationship with AT&T; in Q4 2023, AT&T became an investor in AST and then closed a definitive agreement in Q3 2024. As of Q4 2024, AST was working on full integration with AT&T’s network, with Verizon’s soon thereafter.
Second, the SDA (or the Space Development Agency) selected AST as prime contractor in Q3 2024. In Q4 2024, AST signed a $43M deal with the SDA for a non-communications service. The fact that AST was selected as prime contractor validates the company in general. But the fact that the SDA hired a non-communications service is a reflection of the versatility of AST’s platform, which demonstrates how the satellites can be used for more than beaming broadband to smartphones.
Both the AT&T and SDA deals stem from the successful test of the BlueWalker3 satellite on the 25th of April of 2023. AST SpaceMobile conducted the first space-based two-way voice call using standard, unmodified smartphones (Samsung Galaxy S22 and Apple iPhone) via the BlueWalker3. The speed with which they are able to convert a test into a practical and therefore commercial use case is further indicative of notable process power.
Such speed points also to considerable control over the tech stack,reflective of AST’s vertical integration. AST is 95% vertically integrated as of Q4 2024 according to management, evident in the following three achievements.
AST’s satellites are vehicle-agnostic; they can put any rocket in orbit.
While BlueWalker3 was highly manual, the recently launched five Block 1 satellites are fully autonomous.
The micron is the same for Block 1 satellites as it is for the upcoming Block 2 satellites–the latter will inherit the autonomous capabilities, among others.
This level of vertical integration can only be achieved when the entire company is obsessed with the task at hand. It’s somewhat reminiscent of Tesla’s early days, particularly because the process power seems to extend across domains. The three aforementioned achievements are hardware-related, but AST has also demonstrated vertical integration at the semiconductor level. They’ve developed their own ASIC technology that will power the Block 2 satellites, replacing the third-party FPGA that currently powers the five Block 1 satellites that are in orbit.
In Q4 2024 AST completed the initial validation of its ASIC chip, thus continuing the trend of successfully designing, building, and deploying its own technology. This technology promises to increase bandwidth by over 10X according to management. In turn, the Block 2 satellites are expected to be more than three times bigger than the Block 1s. A curve of rapid performance and complexity increases is emerging, which is likely to make emulation hard for competitors over time. The curve is likely to accelerate as the vertical integration continues over time.
Luis Avellan talked about the ASIC chip in the Q4 2024 earnings call too:
We have completed an initial validation of our novel ASIC chips, which will support up to 10,000 megahertz, 10 gigahertz in processing bandwidth per satellite with peak data speed of up to 120 megabits per second. We expect to incorporate our ASIC to Block 2 BlueBird satellites later this year.
The issue with AST is that, per the graph below, it has, for all intents and purposes, no revenue, and burns a lot of cash. Although the technological moat and process power are evident to me, the business still presents considerable risk for investors. Unlike Amyris, however, which found itself in a similar situation back in 2022, AST solves a real problem for both telecom providers and end customers. The former don’t have to build as many towers or buy as much spectrum, and they get a higher average revenue per user. The latter get better connection anywhere, at a lower cost than otherwise.
Despite the risk, I see this company evolving successfully over the coming years. I think they’ll launch more and better satellites, ultimately serving a rapidly growing volume of customers worldwide. Valued at just over $8B with essentially no revenue, the market is pricing in this possibility. However, I believe that the long term prize for AST is much bigger. For this reason, I’ll continue to monitor the company on a quarterly basis to hopefully home in on an asymmetric setup and/or inflection point.
Remember, when I bet big on Palantir and Spotify at $7.00 and $97.50, respectively, they had tremendous upside and very healthy cash flows. The market was focused on the income statement, which is what led to these mispricings. Once we spot an interesting company, it can take years for a clear asymmetric situation to present itself. But the wait is worth it.
Stay tuned for my AST updates–and until next time!
⚡ If you enjoyed the post, please feel free to share with friends, drop a like and leave me a comment.
You can also reach me at:
Twitter: @alc2022
LinkedIn: antoniolinaresc
ASTS has first mover advantage, however numerous players are coming for this market, so there will be pressure from players with deeper pockets. Likely a decent investment but not one with as wide a moat as you think.
Starlink/SpaceX’s execution and ability to maintain high margins are unmatched, plus their massive satellite fleet gives them a strong edge. Definitely tough competition.