Aren't those fleet upgrades slapping your entire empire with -9%/-19% etc. on your whole income? I've been doing the opposite for that reason i.e. research crew upgrade one ahead of fleet upgrade. I just started taking on hard AI.
Yes, you do get hit by an upkeep penalty for every fleet level, and yes against the AI you can get away with making a capital-ship heavy fleet and then phasing in frigates and cruisers later on. Against a player, this will get you killed, badly.
A capital ship offers less firepower than frigates do on a per-cost basis, so someone who builds a huge fleet is going to roll over your smaller fleet when they go on the offensive. Now, there are exceptions such as the multiple-Halcyon rush which will often see as many as 4 caps very early in the game, but typically you need frigate power if you want to be competitive militarily.
Am I making out that penalty to be bigger than it really is?
Yes and no. On the one hand, this is a substantial economic penalty. Even the first few levels of upkeep on a small empire can be like losing a whole planet's worth of resource production. You're right that it's a sacrifice. However, on the flip-side you get a lot of leeway against the AI since it's not very aggressive (particularly early game) and it's a bad attacker even when it does go on the offensive. If the AI were smarter, like a human player, your small fleet likely wouldn't cut it and you'd be killed very early.
In practice, there is a "middle ground" of fleet size. If you're too big, the economic penalty will hammer you. If you're too small, the enemy fleet is going to hammer you because it's that much bigger. Getting too few fleet upgrades is just as deadly as getting too many, but the AI gives you a little more leeway in singleplayer.
