Redwire Pivoted to Orbital Computing Right as Anthropic Said It Wants Gigawatts in Space. Is This $8 Stock the Cheapest Way to Play the Data Center Satellite Concept?

On September 30, aerospace technology firm Redwire announced a collaboration with Sophia Space to create infrastructure for orbital data center satellites. Only a few months prior, AI firm Anthropic had expressed interest in partnering with SpaceX to deploy gigawatts of computing capacity in space. The timing appeared favorable for Redwire, whose stock traded around $8 per share at the time.

This offered investors potential exposure to a burgeoning market in orbital computing. As part of the partnership, Redwire would investigate building scalable computing infrastructure based on Sophia's modular TILE architecture. This technology integrates computing hardware, solar power, and thermal management systems specifically engineered for space environments.

The companies aimed to pursue government and commercial opportunities, potentially including military contracts.

Anthropic had committed to leasing over 300 megawatts of computing capacity at SpaceX's Colossus 1 data center in Tennessee by May. The company also showed interest in teaming up with SpaceX to develop multiple gigawatts of orbital AI computing capacity. However, building and launching this much computing power into orbit would necessitate massive investments in solar arrays, spacecraft, rocket fuel, power distribution, and cooling systems.

Despite these challenges, Redwire already manufactures several critical technologies, putting it in a favorable position if the orbital computing sector takes off.

In the third quarter, Redwire's revenue rose 5.4% year-over-year to $109 million, with a record backlog of $619.7 million, a 75% increase. Gross margins expanded from 16.3% to 32.3%. Management maintained its revenue forecast for the year between $450 million and $500 million. However, Redwire also reported a net loss of $23.2 million and negative $5.3 million in EBITDA.

With a market cap of around $2 billion, the stock traded at approximately 4.6 times trailing revenue, indicating a modest valuation. Orbital computing faces numerous hurdles such as launch costs, radiation protection, bandwidth limitations, cooling inefficiencies in space, and the difficulty of updating hardware. Developing cost-effective data center satellites might take years.

Redwire competes with other space infrastructure providers, but it holds an advantage due to its existing aerospace operations, diverse hardware offerings, and compatibility with orbital computing technology. Therefore, the company presents speculative exposure to the emerging sector, but its low share price doesn't necessarily imply a cheap stock.

Long-term space infrastructure investment may offer substantial upside, but investors should not assume guaranteed future outcomes.