Al Root at Barron's does the heavy lifting, April 16:
Power gets all the attention, but water is a growing issue.
Water, water everywhere, but…is too much going to artificial-intelligence data centers? That’s the challenge—and opportunity—facing industrial stocks that specialize in H2O.
AI is the growth engine of this stock market, driving everything from utility earnings to SpaceX’s planned $2 trillion initial public offering. That makes it important for investors to understand any potential AI bottlenecks. While power gets all the attention, water is a growing issue. More-powerful AI chips need water to cool them, and managing that increasingly scarce resource is now mission-critical for any hyperscaler that wants to maintain good public relations and be a reasonable steward of the environment.
The issue is only going to get more critical. Nvidia’s H100 chips are currently the most widely deployed AI chip. They can still be cooled by what are essentially big fans blowing air from a giant air conditioner. Such air conditioners, like home ACs, are essentially closed-loop systems, in which a refrigerant circulates within a sealed system. Newer chips use more power, necessitating new cooling solutions, including direct-to-chip cooling, where a plate is attached to the processor. It’s a bit like the way car engines are cooled, with coolant circulating through the equipment. Eventually, chips will need to be cooled by immersing the server in a liquid and with special evaporating liquids, though that’s still years down the road.
This will require lots of water. Morgan Stanley estimates that AI water use will grow to more than 1 trillion liters by 2028, or 400,000 Olympic-size swimming pools. That includes water for power generation, much of which gets recirculated, as well as for cooling and other purposes, so the ultimate amount may be less. Still, it will be up to industrial companies to build systems that can cool chips in efficient closed-loop systems, with as little waste as possible. Here are six stocks that should benefit.
Eaton
Packaging power and cooling together is a competitive advantage—and Eaton, a hardware and software provider for data centers, is on its way to doing just that. In March, Eaton closed on its acquisition of Boyd Thermal, which provides both power and cooling for AI data centers. That makes the company a system provider, which gives it an edge over companies that provide only components, says Janus Henderson research analyst William Brothers. The deal also gives Eaton 500 more engineers specializing in cooling tech. With expected earnings growth and its recent valuation, shares could fetch about $470 in a year, up 19% from recent levels.
Schneider Electric
Like Eaton, Schneider Electric provides both electrical hardware and software for data centers. That is the result of its acquisition of 75% of Motivair in February 2025, which brought expertise in cooling distribution units and direct-to-chip cooling plates in house. The deal has been a tailwind for Schneider. RBC Capital analyst Mark Fielding forecast total sales growth of 9% a year through 2030, up from roughly 6% annually over the past three years. He rates shares Buy and has a $68.40 target for the U.S.-listed American depositary receipt, up 10% from recent levels.
Vertiv Holdings...
....MUCH MORE
Earlier today:
"Water, Waste & Energy: Inside Veolia's Data Centre Offering"
