Projects to build data center infrastructure in low-Earth orbit have been increasingly discussed in the business press recently. AI is rapidly developing, permeating everything, and now it's setting its sights on space. Arctic Ventures is tracking the emerging market for orbital data centers as AI infrastructure demand grows.

Deutsche Bank expects the first small-scale orbital data centers to be deployed in 2027–2028. Their purpose is to test technologies and economic models. Larger constellations, potentially comprising hundreds or thousands of units, could appear in the 2030s, assuming the success of the early missions. However, timelines may vary depending on technological and market developments.

Space data centers are believed to be primarily focused on AI computing. However, demand for computing power is also steadily growing from other sectors: high-performance computing, crypto assets, the Internet of Things (IoT), metaverses, and so on.

Several projects have already been initiated, and additional efforts may emerge as interest in the area continues.

Motivation and growth drivers

The driving forces behind this trend are multifaceted. It has a serious underlying cause, encompassing issues of infrastructure, economics, sociology, and engineering. Recent advances offer hope that these issues will be addressed.

1. Infrastructure limitations on Earth

Computing infrastructure must become increasingly less visible, but the load on it is increasing. According to DemandSage calculations, humanity created 64.2 zettabytes of information in 2020 (a 56.6% increase compared to the previous year), and by 2025, this volume would reach 181 zettabytes (a 23.1% increase). By 2026, this data volume is expected to reach 221 zettabytes.

The task of storing, transmitting, and processing such a massive amount of data is already reaching physical limitations. A Bloomberg News analysis showed that in areas adjacent to terrestrial data centers, electricity costs have increased as much as 267% compared to five years ago. Over time, data centers could occupy vast territories and significantly increase energy prices in many places, which is already causing discontent among local populations. Transferring physical infrastructure from Earth to space seems a logical solution to this problem.

2. Power and cooling

From an economic perspective, orbital data centers overcome a number of terrestrial limitations: lack of electricity and land, as well as difficulties with cooling equipment.

Scientists at Caltech have proposed a space-based panel concept that could potentially generate 1 kWh for 9 cents, almost half the average cost of electricity in the US. Orbital operation enables access to continuous solar energy, which may help reduce reliance on terrestrial power sources and associated energy costs.

According to a McKinsey analysis, cooling is one of the most resource-intensive expenses: in some cases, it accounts for up to 40% of operating costs. Space has a vacuum and cold, which can be used as an "infinite cooler." Although there is no convection in a vacuum, heat can be effectively released through radiation into the void.

These developments contribute to ongoing assessments of the physical and economic feasibility of such projects.

Market outlook

McKinsey forecasts, by 2030, data centers will require capital investment of nearly $7 trillion. In this context, orbital systems are being explored as an additional approach to address constraints associated with terrestrial networks, including bandwidth limitations, energy availability, and physical space. Space-based data centers remain at an early stage of development, with ongoing efforts focused on technical feasibility, deployment models, and integration with existing infrastructure. Current estimates of market size vary and remain preliminary, reflecting limited available data and the evolving nature of the sector.

Advances in technology, reduced launch costs, and increasing demand for energy-efficient systems are shaping how the sector is being developed and deployed. These factors are influencing system design, operational feasibility, and the potential for broader implementation over time.

Key players and projects

Major projects have already been initiated in this sector by American and Chinese companies, with significant capital expenditures being allocated. There are indications of increasing global interest, with additional countries potentially becoming involved over time.

Risks and challenges

Despite the promising prospects of this sector, it is important to understand the challenges of such projects:

Cost: Delivering equipment to orbit is still quite expensive, which calls into question the profitability of early projects.

Radiation: Cosmic radiation can adversely affect electronics, requiring special shielding.

Maintenance: Repairing such equipment in orbit will be difficult and will likely require specialized robots.

Space debris: The increasing number of objects in orbit complicates the problem of space debris. Data centers can be damaged by debris impacts.

Conclusion

Space-based data centers are being explored as one potential approach to addressing challenges related to AI infrastructure, including data processing capacity and energy constraints. However, the technical and economic feasibility of these systems has not yet been fully demonstrated, and most projects remain in early or experimental stages.

To date, development has been led primarily by large corporations and well-resourced organizations, reflecting the complexity, cost, and long timelines associated with deployment. As the sector evolves, further testing and operational validation will be needed to assess how these systems can be implemented at scale.

Venture capital funds have begun examining this area, alongside the emergence of new projects and initiatives. These developments reflect ongoing efforts to explore how global computing infrastructure may evolve over time.

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