Spacecraft Builder That Beats Big Defense Primes On Cost And Speed: Here's How To Profit
Provided continued AI disruption, indiscriminate software stock selling, and credit market risks do not trigger a broader risk-off market event in the coming weeks or months, a June SpaceX IPO could become the bedrock for the grand reopening of the IPO market. The second-order effects of a SpaceX IPO would be improved sentiment toward AI companies going public and potentially a serious investor appetite for the low-Earth-orbit space industry.
Continuing our ever-evolving "how to profit" space theme, a newly listed company on U.S. exchanges is York Space Systems.
YSS is a U.S. government-focused Space Prime that builds standardized satellite buses (spacecraft platforms) at scale, integrates customer payloads, and supports the rest of the mission, launch coordination, the ground segment, and in-orbit operations.
"Its vertically integrated design and manufacturing process means its SVs can be produced at 50% of the cost and 20% faster than defense primes," Goldman analyst Anthony Valentini wrote in a note on Monday.
Valentini told clients her markets team has begun to "initiate coverage of YSS at Neutral with a $29 price target."
YSS' ability to build spacecraft and offer aligned services at not just half the cost but in a quicker timeframe checks all the boxes that the U.S. military is searching for these days, especially with the DOGE unit at the Department of War resetting the procurement program away from big, bloated legacy primes to startups.
Valentini gives three reasons why her markets team favors YSS:
Growth: alignment to the growing space economy and shifting DoW purchasing preferences could lead to fast growth;
Business model: the business is capital light and structured to control cost, enabling lowest price solutions to customers;
Potential sticky high margin revenue: potential for recurring high margin software revenue as the installed fleet increases.
YSS was founded in 2012 and went public at the start of this year. Valentini described a little bit more of its operations:
The company bids as the Prime, under fixed-price contracting terms, manufactures satellite buses, and integrates the payload into its spacecraft for the customer. York serves the customer through the full mission life cycle; the company manufactures the satellite bus, integrates the payloads, organizes launch services, and provides mission operations post-launch.
How YSS benefits from the space industry:
"Left of Launch": York bids on a contract as the prime, builds the satellite bus, integrates the payload, and delivers it to the launch provider so that the customer can then operate the satellite and receive data from the payload.
"Right of Launch": York offers software services to operate the satellite for its customer. This is potentially a significant lever for the business because it is high-margin recurring revenue, but currently this offering forms less than 5% of the backlog.
The proliferation of space architecture provides a significant growth opportunity.
The space ecosystem has experienced significant growth in recent years as innovations in launch have reduced the cost to get to orbit, and militaries look to gain the high ground to ensure national security. The SDA has spent ~$14bn on SVs for the PWSA program, and the U.S. government funded ~$25bn for Golden Dome. The company expects that the intel community opportunity is 2x PWSA, and it can service $65bn of the potential $175bn for Golden Dome, leading to a TAM of $140bn.
YSS is one to track.
Whether the catalyst is the incoming space boom or federal "Golden Dome" spending, YSS stands to benefit from both themes. Investors are already signaling bullish appetite for the space trade, as seen in the recent blast-off in a stock tied to a Korean broker that holds about $400 million in private shares of SpaceX and xAI.
Professional subscribers can read much more of the Goldman note here at our new Marketdesk.ai portal