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Hennessy Funds Investment Letter · AST SpaceMobile Podcast

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  This is a text to speech podcast episode read by Google Cloud AI
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  Original Source LinkedIn The podcast description Source
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  Hennessy funds AST Space Mobile Second quarter results were
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  good, driven by the significant appreciation of AST Space Mobile
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  one which more than doubled during the period.
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  We believe this recent price movement reflects the many
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  favorable developments that have come to light over the last
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  several months. Some of the more notable items
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  include funding of Golden Dome, approval of the Legato spectrum
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  arrangement, continued progress with the FCC and a falling out
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  between President Trump and Elon Musk diminishing slash
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  eliminating potential government or regulatory favoritism toward
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  competitor SpaceX slash Starlink.
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  Despite this move in the share price, we believe AST continues
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  to offer excellent opportunity. Not only does the business
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  continue to de risk on technological, financial and
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  regulatory friends, but our estimate of the market
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  opportunity has grown materially.
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  We have always thought that government could be an important
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  customer, but recent disclosures and developments such as Golden
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  Dome reveal a breath and magnitude of opportunity that we
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  did not fully appreciate. We now believe that AST will
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  generate billions of annual revenue from government services
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  as discussed further below. Government Opportunity AST has
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  an opportunity to provide services to the military,
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  intelligence agencies and 1st responders.
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  While the US opportunity is the largest, there is significant
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  potential with other nations as well.
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  U.S. Department of Defense DoD
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  Communication Services The most obvious use case for AST is
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  enabling secure voice, video and data communications to military
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  personnel on nearly every square mile of the planet.
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  To this end, a June 2025 demonstration in Hawaii with AST
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  and its partner Fairwinds Technologies showcased key
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  defense related use cases for US Indopakam forces including
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  representation from the US Navy, Marine Corps, Army and Space
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  Command, including real time connectivity to the Tactical
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  Assault Kit, TAC over a VPN, multimedia streaming via TAC and
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  secure multi party video calls all executed on standard
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  unmodified smartphones. These use cases are closely
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  related to AST's Commercial Services, so this demonstration
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  provides additional evidence of the core technology working well
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  in a real world setting. U.S.
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  Department of Defense DoD non communication services.
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  The new Trump administration, recognizing that we are
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  inadequately prepared to defend ourselves against novel weapon
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  systems such as drones, hypersonic missiles, and
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  advanced ICBM's, has accelerated modernization efforts across the
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  US military. Obsolete programs are being
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  discontinued and resources are being poured into capabilities
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  to counter these new threats. Central to this effort is
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  advancing US capabilities in space, headlined by the Golden
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  Dome program. Legacy missile defense systems,
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  often composed of ground radar, Geo satellites, and terrestrial
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  interceptor batteries, are designed to neutralize
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  traditional short and long range missiles.
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  The trajectory of these missiles is predictable from shortly
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  after launch, making them relatively easy to intercept.
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  We saw an example of this in June, when Israel's Iron Dome
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  intercepted 80 to 90% of the more than 500 ballistic missiles
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  fired at it by Iran. However, newer long range
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  missiles, such as hypersonic and advanced ICBM's can change
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  trajectory during travel and sometimes include decoys and
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  multiple warheads made to fool existing missile defense
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  systems. This makes these missiles much
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  more challenging to neutralize. the US and its allies are
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  vulnerable to these advanced weapons and need a faster, more
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  accurate, and more distributed missile defense system in
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  response. The unprecedented size and power
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  of AST's Elio satellites make them especially well suited to
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  assist in tracking modern missiles along with a variety of
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  other via how you functions. Research reveals excellent
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  effective isotropic radiated power output, power of a signal
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  when it is concentrated into a smaller area by the antenna and
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  gain to noise temperature, how well the system can detect weak
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  signals amidst noise, enabling a variety of novel capabilities.
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  Possible DoD uses include radar supporting high value military
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  radar applications such as synthetic aperture radar, high
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  resolution imaging using radar signal reflections, ground
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  moving target indication and missile tracking.
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  Assured and alternative PNT position navigation and timing
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  providing a stronger jam resistant signal compared to
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  existing GPS. Improving indoor reception and
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  cybersecurity through authentication and encryption.
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  Blue force tracking, BFT and identify friend or foe IFT.
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  Improving situational awareness of troop and asset locations.
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  Reducing friendly fire incidents.
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  UAS or drone control. Enabling remote control of
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  unmanned aerial systems. UAS in areas lacking terrestrial
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  infrastructure. Signal intelligence.
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  Detecting and reading electromagnetic emissions of the
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  enemy. Signal jamming.
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  Jamming enemy signals over large geographical areas such as
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  maritime zones and remote areas where terrestrial jammers are
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  impractical. Growing momentum with EU DoD.
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  While early the DoD opportunity is beginning to take shape.
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  We know that AT now has at least 6 U defense contracts and we
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  believe that there are multiple classified applications running
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  on AT satellites. Today, the evidence is mounting
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  that AST is going to play an important role in national
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  security. Consider On April 23rd, during a
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  visit to AST's Texas manufacturing facility, FCC
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  Chairman Brendan Carr and Senator Ted Cruz highlighted the
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  national Security benefits from the company's technology, with
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  Carr stating importantly, it's going to help us secure our
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  National Defense, including by making sure we stay ahead of
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  China. On June 6th, AST CFO Andy
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  Johnson commented at AST's annual meeting that the company
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  is positioned to be a very important contributor to the
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  US's Golden Dome program, while noting the services it already
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  provides to the government have overlapped with the capabilities
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  Golden Dome seeks to achieve. Meeting minutes from the June 26
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  Miami-Dade County Board meeting revealed ASTS plans for a 25 to
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  $30 million manufacturing facility on the highly secure
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  home state Air Force Base to increase production and
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  establish a satellite operation center and gateways for
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  government projects. President Trump has set an
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  aggressive three-year timeline to complete Golden Dome.
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  AST's announced launch cadence aligns well with this timeline.
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  Our most recent tour of AST's Midland, TX facility in early
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  July demonstrated that satellite production is ramping nicely and
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  the company is on a path to meet the pace needed to fulfill the
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  launch schedule. And there have been multiple
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  successful field tests with the DoD with more testing to come.
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  Funding and revenue potential. Initial Golden Dome funding of
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  $25 billion was secured with the July 4th signing of the Big
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  Beautiful bill. This should be a watershed event
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  for the space defense industry. With spending ramping quickly.
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  We estimate the DoD will spend $14.5 billion on satellites and
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  related services in 2025. Golden Dome and new funding for
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  the proliferated Low Earth Orbit Satellite based services
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  program, PLEO are forecast to more than double the spending to
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  34 to $37 billion over the next three three years.
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  AST is positioned to be a major beneficiary with its Leo
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  satellites. We think AST's unique technology
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  will enable a number of Golden Dome capabilities and we know
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  the company is 1 of 20 approved vendors eligible to compete for
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  task orders under the PLEO contract.
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  In addition, we think several of AST's current defense contracts
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  are likely to develop into programs of record, each with
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  multi $100 million of annual revenue.
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  We believe AST will generate 1 to $25 billion of annual DoD
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  revenue, mostly from recurring services in the intermediate
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  term. While these are large numbers,
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  they equate to just a mid single digit share of DoD satellite
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  spending. First responder opportunity AST
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  is also poised to enable supplemental coverage for US
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  first responders, law enforcement, fire, rescue, EMS
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  and Emergency Management who require full geographic coverage
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  and 100% uptime, including during natural disasters.
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  In order to provide mission critical services.
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  AST is already partnered with both AT&T and Verizon.
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  AT&T through Firstnet and Verizon through Frontline
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  provide communication solutions to more than 12 million first
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  responders. First Net officials have
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  confirmed they are in the final stages of investing in AS TS
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  direct to device technology. We expect high adoption rates of
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  AST service from both First Net and Frontline.
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  If we assume pricing of $20 per user per month, a premium
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  compared to regular commercial pricing.
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  Reflecting enhanced features for first responders such as push to
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  talk and priority and preemption.
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  A 50% adoption rate and a 50% revenue share with AT&T and
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  Verizon US first responders would generate $720 million in
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  annual revenue for AST in the intermediate term.
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  International opportunity, we believe that most developed
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  nations will want defense and emergency services capabilities
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  similar to the US For example, we understand that NATO's future
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  SAT COM program is actively exploring using AST for 5G
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  directed device service. And Vodafone, AST's joint
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  venture partner in Europe offers mission critical emergency
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  services to 1st responders. They plan to add direct to
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  device mobile broadband satellite services to this
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  offering when it is available. To estimate AT's non U defense
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  opportunity, we begin with our U Defense revenue estimate of 1 to
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  $25 billion per annum. We haircut this by half to
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  reflect smaller NATO and non NATO allied nation defense
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  budgets cumulatively point $5 trillion versus $1 trillion at
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  the DoD and adjust further because these nations will
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  likely spend a lower percentage of their budgets on satellite
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  capabilities leveraging the US Golden Dome where permitted.
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  In total, we estimate that AST will generate 300 to $750
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  million in annual revenue from non-us defense spending in the
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  intermediate term. To estimate AST's non-us first
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  responder opportunity, we begin with our US first responder
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  revenue estimate of $720 million per annum.
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  We adjust our US number to account for differences in
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  population in GDP across all developed nations X China and
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  further adjust for the likelihood that AST will have
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  lower first responder market share internationally.
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  In total, we estimate that AST will generate $400 million in
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  annual revenue from non-us first responders in the intermediate
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  term, total military intelligence and 1st responder
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  opportunity. In total, as itemized above, we
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  expect AST will generate 2.4 to $4.4 billion in annual revenue
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  from worldwide military and 1st responder opportunities in the
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  intermediate term. Beyond this, the US national
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  intelligence budget has about $80 billion versus about $1
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  trillion at the DoD. We do not specifically account
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  for this in this exercise. That said, it seems clear that
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  many of the capabilities that AST is potentially providing to
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  the DoD would also be valuable to intelligence agencies here
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  and abroad. Position sizing AST has
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  appreciated to become a much larger than normal position for
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  us. Even so, we have not trimmed our
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  AST position and we do not anticipate doing so in the
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  short. Given the information we have in
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  front of us today, we have consistently described AST as a
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  special situation investment. It does not fit our typical
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  profile of a well established business with a history of mid
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  teens earnings per share compounding.
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  AST is an early stage business with little revenue and
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  difficult to understand technology.
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  It became public via a SPAC, needs capital to fund its
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  business plan and competes with Elon Musk's formidable SpaceX
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  slash Starlink. That is not the profile of a
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  business that screens well. Even today as the stock has
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  moved up to a mid cap size, it remains relatively unknown to
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  most of Wall Street. Against this backdrop, we have
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  conducted more proprietary research on AST than any other
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  business we have ever owned. And that research combined with
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  the perspective that comes from investing in the wireless
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  telecommunications industry for nearly three decades has
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  informed our view that AST has a high probability of achieving
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  its business objectives and delivering outstanding returns
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  for equity holders from here in the long term, markets and
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  investment portfolios are driven by right tail outcomes.
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  As shown by Hendrick Bessenbinder's research, just
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  3.4% of US public companies have driven nearly all the net wealth
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  creation in the equity market above one month treasury bills
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  over the last nearly 100 years. In AST, we believe we have the
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  makings of a right tail outcome. It is rare to find such
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  opportunities and once found they should be assiduously
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  managed. We were flexible and identifying
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  and investing in AST and we believe that similar flexibility
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  of thinking is called for in managing this position size.
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  Our framework for sizing AST. We are looking at 3 inputs to
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  inform the sizing of our AST position, one price to value
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  relationship. In our base case, we believe AST
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  will be worth 5 to 10 X it's current price in five to 10
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  years time. A 30% to 40% IRR over a 7.5 year
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  horizon on a probability weighted basis incorporating a
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  range of potential outcomes. Expected returns are similarly
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  compelling, significantly better than anything else in our
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  opportunity set. Absolute size, value at risk.
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  We consider absolute position size, but also the magnitude of
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  loss that might occur, value at risk if one of our primary
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  negative business scenarios were to come to pass.
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  As we have written previously, we believe AST has a much lower
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  risk profile than it did a year ago and has an estimable floor
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  value. With the emergence of
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  significant government opportunities and gaining
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  control of legato L band spectrum, that floor has been
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  raised. On balance, we are comfortable
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  with the current position, size and value at risk.
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  If we are wrong about the business and the stock performs
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  poorly in the long term, not short term mark to market, it
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  will be an unpleasant set back, but one that we can accept in
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  the context of the overall portfolio.
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  Information advantage AST is a complex and fast evolving
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  business. The information flow is an order
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  of magnitude greater than any other investment we have in our
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  portfolio. Staying on top of this
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  information and synthesizing it has required enormous effort,
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  probably the equivalent of a full time job.
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  We have made this commitment but suspect few others have.
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  As a result, we believe we are in a position to see the image
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  in the mosaic while others are still looking at bits and pieces
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  of tile. This is felt particularly true
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  over the last 18 months or so. We continue to see a host of
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  positive developments on the horizon.
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  Other investors do not seem to be aware of them or do not
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  sufficiently appreciate their significance.
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  It is rare in investing to have an information advantage.
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  We will stay attuned to its continued presence and
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  magnitude. If we use a stoplight analogy, 2
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  of these factors, price to value and information advantage would
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  be green with one absolute size value at risk being yellow at
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  the moment. This leads us to hold our AST
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  position rather than trimming. We will continue to update our
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  thinking as we receive new information.
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  Upcoming milestones. AST continues to be a rapidly
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  developing business. In the coming quarters, we will
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  be watching for the following milestones as measures of
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  progress toward our thesis. One, FM .1 shipment and launch.
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  Two, FM .2 plus Block 2 launches every one to two months.
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  Three Verizon Definitive Commercial agreement.
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  Four, first net Investment and Commercial agreement 5 Further
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  military demos or testing demonstrating 120 megabits per
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  second when using 40 megahertz of spectrum. 6 Golden Dome
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  Awards 7A TT, Verizon, Vodafone and Rakatin beta test results in
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  late 2025. 8 Execution of additional definitive commercial
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  agreements with prepaid revenue from Bell Canada, Telefonica,
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  Saudi Telecom and more than fifty other global M and OS9.
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  Securing $500 million plus of XMIFC non dilutive financing. 10
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  FCC 5G fund grant The 11 Expansion of existing DoD
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  contacts and new contract wins. 12 Potential strategic
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  partnership with Apple and or Blue Origin, Amazon Bezos 13
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  Additional spectrum unlocks SiriusXM strategic partnership
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  Echostar spectrum sharing deal.