For a little over two years now, we've been watching with interest as more and more American space companies line up to compete for the right to build private space stations in orbit.

With the International Space Station (ISS) expected to deorbit and fall into the sea sometime in 2031, nearly a dozen different space companies -- many of them publicly traded space stocks -- are still in the competition:

  • Vast Space and Axiom Space, private companies operating out of Long Beach, California, and Houston, Texas, respectively, each have plans to build independent space stations in Low Earth Orbit.
  • Voyager Space -- another private company, but operating in partnership with publicly traded Airbus (EADSY 1.14%), Northrop Grumman (NOC -1.23%), and -- maybe -- Lockheed Martin (LMT -0.86%) as well, plans to build a space station dubbed Starlab.
  • Last but not least, Blue Origin -- the private space venture founded by Amazon.com's (AMZN 2.94%) Jeff Bezos -- is the company that arguably launched this race to space with its 2021 announcement that it was forming a team including Boeing (BA -1.75%), Sierra Space, and Redwire (RDW 5.79%) to build an Orbital Reef space station.

It's these last two publicly traded opportunities that we'll be talking about today.

We're from the government, and we're here to help (with cash)

Up through the end of last year, NASA had awarded funding to at least three of these groups -- led by Axiom, Voyager, and Blue Origin, respectively. Last week, though, NASA tweaked the terms of its support to award nearly $100 million in funding to just the last two.

Citing Northrop Grumman's abandonment of a plan to build its own space station and its decision to team up with Voyager instead, NASA advised that it would divert funds originally intended for Northrop's project to the team building the Starlab. Simultaneously, the space agency said it is awarding new funds to Orbital Reef as well.

Specifically, the Starlab project will receive $57.5 million in new NASA funding, bringing its total level of government support to $217.5 million. Orbital Reef will get another $42 million from NASA, bringing its total to $172 million. (Axiom has a different deal with NASA -- a firm, fixed-price contract worth $140 million to build and attach to the International Space Station at least one and possibly more new habitation modules).

Why isn't NASA building its own space station?

That's an excellent question. Why isn't NASA building its own ISS replacement? NASA hired contractors to build the American modules of the current International Space Station, which America then owned. Why is it that this time, NASA's just giving money to companies to build stations that America will not end up owning -- that the companies will get to keep?

And basically, the answer is that building a space station is really expensive. It cost something on the order of $100 billion to build ISS, and much of that was spent in the form of year-2000 dollars before inflation really took off. In today's dollars, the cost might be closer to $184 billion. Yet right now, NASA has its hands full just trying to pay the bills for its Project Artemis effort to put astronauts back on the moon, and can't really afford the cost of building a replacement ISS at the same time.

So, instead, the plan is to give a few companies some start-up money, then award them contracts to assure them they'll have a reliable revenue stream leasing space to and performing services for NASA (and others) in the future -- and let them build their own stations. This way, NASA sidesteps much of the upfront costs and shifts most of the financial burden to its contractors.

What does that mean for space investors?

Of course, the obvious question then arises: Should investors want to take on that risk by investing in whoever ends up building the space station(s) to replace ISS? And the answer is, "That depends."

At present, the amounts of money we're talking about -- $217.5 million here, $172 million there, and over at Axiom, just $140 million -- aren't really huge numbers. Barely half a billion dollars in total and barely a rounding error if we assume the cost of building something to replace ISS might ultimately approach $184 billion.

As plans progress, however, and designs firm up, NASA says it will begin awarding contracts for the "procurement of services from one or more companies, where NASA aims to be one of many customers for low Earth orbit destinations." Only when we see the size and number of those contracts (and get a better idea of the companies' estimates for the cost to build their stations) will we be able to determine how profitable these stations might become.

In the meantime, in-between time, we'll just keep on doing what we've been doing consistently for the last two years -- watching carefully, counting up the numbers, and letting you know what we find out.