The overlooked resource in the AI economy

Water is rapidly emerging as a strategic constraint in the AI ecosystem – equally critical as electricity, yet far less recognised by markets. As efficiency solutions evolve, water management is poised to become a meaningful driver of operational risk, regulatory exposure and capital allocation. This note examines AI’s expanding water footprint, identifies sectors positioned to benefit as operators prioritise water-efficient infrastructure and hones in on a core holding with leading water stewardship capabilities.

AI’s expanding water footprint

AI-driven data centres are projected to consume approximately 1,068 billion litres of water annually by 2028 (base case), representing an elevenfold increase from 2024 levels and correlating with an eightfold rise in power demand.(1)  While water usage for cooling is relatively well understood, indirect consumption through electricity generation remains largely overlooked.

 AI’s broader, or ‘scope 3’, water footprint extends to semiconductor manufacturing, where facilities can use up to five million gallons of ultrapure water per day – a clear indication of the sector’s dependence on water-intensive processes.(2)

 Water stress is highly localised, with over half of the world’s leading data centre hubs located in regions already branded as “medium basin physical risk”. Two-thirds of new US builds are in high-risk areas, with water risk assessments for sites critical prior to decision-making. In some US counties, data centre water demand can match or exceed the entire daily usage of the county population.(3)

Governments are responding with restrictions as well as incentives and standards. For example, the Tucson City Council unanimously rejected Amazon’s (NASDAQ: AMZN) Project Blue data centre proposal in May 2024, citing concerns over water and energy usage. While it was expected to be a significant economic driver for the city, residents and local officials argued it would strain the region’s resources. This represents a growing trend of scrutiny against tech infrastructure projects in water-stressed areas. In another example, Amazon alleges that a Berkshire Hathaway Inc. (NYSE: BRK.B)-owned utility in Oregon is failing to provide sufficient power for four new data centre facilities, highlighting the strain such rapid expansion of technology facilities is putting on the electric grid. Data Center Watch claims that $18bn worth of projects were blocked and a further $46bn more were delayed in the two years prior to March 2025. Local concerns included higher utility bills, water consumption, noise pollution, impact of property value and green space preservation. Loudoun County, Virginia, where “Data Center Alley” resides, has seen a surge in new proposals for water use planning.

In terms of positive regulatory incentives and standards, several jurisdictions like California, US, Singapore and the EU have introduced tax credits, disclosure mandates and performance benchmarks to promote more water-efficient technologies. In California, SB 58 – Sustainable Data Center Incentives directive offers credit for data centres that meet specific sustainability criteria, including the adoption of water-efficient cooling systems. The EU’s Energy Efficiency Directive data centre reporting rules are part of a larger regulatory package aimed at reducing energy consumption by 11.7% between 2020 and 2030. Regulators are targeting data centres as they are estimated to consume 2-3% of all energy used in the EU, with processing-heavy AI technologies driving the demand for greater computing power, water and data centres. Organisations operating data centres in EU nations are required to file reports detailing water and energy consumption and the steps they are taking to reduce it.

 There is some current scrutiny in the market towards the AI theme given risks to hyperscaler capex sustainability, unproven ROI, deal circularity and capex plans outpacing free cash flow and debt raises. 

While some may not get off the ground, hyperscalers and others are clearly increasing their capex guidance markedly, with a large portion targeting data centre construction and fit out. Hyperscalers have an ambition to double computing power dedicated to AI build-out over the next five years.(4)  At its November 2025 Financial Analyst Day, Advanced Micro Devices, Inc. (NASDAQ: AMD) unveiled its strategy to lead the $USD1 trillion compute market and accelerate its next phase of growth. The company outlined a long-term plan to expand its data centre and AI leadership with greater than 35% revenue CAGR and greater than $20 non-GAAP EPS target. Its capex rose nearly 60% yoy in 2025. Alphabet Inc. (NASDAQ: GOOGL) recently announced 2026 capex guidance of $175-185bn, nearly doubling its 2025 spend, with a primary focus on AI infrastructure and cloud expansion, signalling confidence in long term demand and monetization of AI services. Microsoft Corporation (NASDAQ: MSFT) expects FY26 capex growth to be higher than in FY25 (+58%), Amazon.com, Inc. spent $132bn on capex in FY25 with spend in FY26 representing a historic single-year investment of $200bn, over a 50% increase over 2025 spending levels. The bulk of investment is earmarked for Amazon Web Services (AWS) expansion, AI infrastructure and data centre construction. Meta Platforms, Inc. (NASDAQ: META) spent nearly $70bn on capex in FY25, with expected capex guidance for FY26 up 73% yoy ($115-135bn) in pursuit of “superintelligence”.

The water challenge is generating opportunities

 The shifting dynamics of the water–energy interaction are reshaping operational economics. Dry cooling technologies reduce water consumption but can increase energy use by 30-50%, while evaporative systems lower power costs yet require significant water inputs. To provide a more complete view of resource performance, new metrics such as Total Usage Effectiveness (TUE) are being adopted to capture both water and energy efficiency. Concurrently, emerging solutions – including closed-loop cooling and atmospheric water harvesting – demonstrate ongoing industry innovation aimed at balancing sustainability objectives with resource constraints.

As operating expenditure becomes a central focus for hyperscalers, sustainability factors are playing a growing role in cooling-infrastructure decisions. 

Whereas traditional capital-expenditure-driven approaches prioritised upfront cost and performance, the ongoing energy demands of cooling systems are now directly influence operating expenses. This shift is increasing the pressure on cooling-equipment providers to deliver solutions that maximise energy efficiency, minimise water consumption, and incorporate renewable-energy sources. In this environment, sustainability has evolved beyond a compliance obligation to become a competitive differentiator closely linked to financial performance.

For investors, potential action points would include:

• Incorporate water footprint into due diligence for AI-heavy businesses;
• Engage with companies on water disclosure and mitigation strategies;
• Monitor regional water stress where data centres are located; and
• Factor water risk into scenario planning and valuation models.

Investment implications: Ways to be involved in the thematic

There are several ways to play this emerging theme. Our investment framework is multi-pronged to drive alpha investing in this underappreciated idea:

 Invest in enablers. This would encompass liquid cooling solutions (scope 1) for AI hardware, water recycling and treatment technologies. A prime example is Johnson Controls International plc (held in the Climate Delta strategy), a global leader in smart, energy-efficient building technologies, delivering integrated solutions that sit at the core of modern infrastructure. With a portfolio spanning advanced HVAC systems, digital building controls, data centre thermal platforms, fire and security technologies, and enterprise-grade sustainability software, the company operates at the intersection of operational performance, decarbonisation and resiliency. DAIKIN INDUSTRIES, LTD. (6367-JP) and Kokusai Electric Corporation (6525-JP) are other Heating, Ventilation and Air Conditioning (HVAC) Enabler examples within our portfolio holdings. DAIKIN is a provider of high-efficiency inverter systems, heat pumps and is focused on upgrading its product mix. DAIKIN develops and supplies hydrofluoroolefin (HFO) blends for HVAC systems, designed to replace traditional refrigerants with lower global warming potential (GWP). Siemens AG (SIE-DE) via its Siemens Digital Industries Software (Simcenter, NX, Teamcenter, MindSphere) provides virtual datacentre/simulation/digital-twin environments to model entire facilities in order to max Power Usage Effectiveness (PUE) and enable resource efficiency. Honeywell International Inc. (NASDAQ: HON) is a coolant chemicals manufacturer, playing into the liquid cooling landscape.

Renewable energy players. Such stocks generate indirect exposure to off-site water consumption via electricity generation (scope 2 water consumption for the AI value chain). Stocks across the live Antipodes Global Equities team portfolios that screen as generating at least 50% of revenue/capex exposure to this include RWE AG (RWE-DE), Siemens Energy AG (ENR-DE), Prysmian S.p.A (PRY-IT) and Array Technologies Inc (NASDAQ: ARRY).

Semi manufacturing (scope 3) stocks with relatively strong water stewardship. Out of our semiconductor foundries holdings, Taiwan Semiconductor Manufacturing Co., Ltd. (NASDAQ: TSM) stands out, achieving a process water recycling rate of 90.3% in 2023, significantly enhancing its resilience to drought and potential municipal supply disruptions. 2030 water targets include a 30% reduction in unit water consumption (litres per 8-inch equivalent wafer-layer) from a 2010 baseline.  The company targets 30% replacement of freshwater with recycled sources by 2030 and for effluent water quality to exceed regulatory standards by 30%. Out of our hyperscalers and colocation provider holdings Amazon.com, Inc (AMZN-US), Microsoft Corporation (MSFT-US), META Platforms, Inc. (META-US; no longer held) and Alphabet Inc. (GOOG-US) have all committed to water positive, replenishing more water than they consume, by 2030.

• META Platforms currently reports onsite and offsite water usage separately, while most hyperscalers are only reporting onsite cooling usage, missing the bulk of their water footprint (offsite water usage includes electricity generation and supply chain impacts). META Platforms, Inc’s water restoration projects plan to restore 200% of consumption in high water stress regions and 100% of consumption in medium water stress regions.
• For Amazon.com, as at year end 2023, AWS was more than 40% of the way toward achieving its water positive goal. In February 2023, Amazon announced a $12bn data centre project in Louisiana, committing to fund the associated energy and infrastructure requirements. This move reflects the growing expectations that large tech companies will absorb upfront power and system impacts, with governments increasingly formalising such obligations. On water use, Amazon committed to relying only on verified surplus water – water deemed not required by the community where the data centres are based. The data centres will primarily use air cooling, with water cooling expected for less than 13% of the year during peak summer conditions. The company also plans to invest up to USD400 million to enhance local water infrastructure.
• Microsoft Corporation has water replenishment projects in place to provide water for projects. Microsoft recently committed $10bn to expand its AI data centre infrastructure along Portugal’s Atlantic Coast, part of its broader $33bn commitment to “neocloud” data centre providers as the tech giant scrambles to meet exploding demand for AI computing capacity. Portugal is the only European country that offers direct connections to every inhabited continent via international cable landing stations. The site also has the advantage of being powered by 100% renewable energy at relatively attractive pricing. The campus employs a seawater cooling system, eliminating freshwater consumption while optimising energy efficiency.
• Alphabet Inc pledged to replenish 120% of the water consumed, on average across all offices and data centres.
• In addition, Microsoft and Google are actively promoting a more granular approach to Scope 2 emissions reporting, known as hourly matching. This method aligns electricity consumption with clean-energy generation on an hour-by-hour basis, rather than using annual averages. The approach supports more accurate carbon accounting, strengthens demand signals for renewable energy, and positions sustainability as a measurable operational objective. Both companies are investing in time-stamped energy certificates, digital tools, and market mechanisms to enable this level of precision.

Spotlight on Taiwan Semiconductor Manufacturing Co., Ltd. (NASDAQ: TSM)

TSMC is a high-quality growth compounder, with a near-monopoly position in producing the most advanced computer chips. Its dominant market position has been built on three pillars; robust commitment in R&D investment, manufacturing excellence and a customer-centric foundry model. Together, these strengths drive durable earnings growth and long-term shareholder value.

ESG and water stewardship

TSMC integrates ESG into its core business, aspiring to catalyse sustained positive societal change. The company views semiconductor advancement as a global ESG enabler, particularly for energy sustainability.

Environment

The company is committed to net-zero emissions by 2050 and zero growth in emissions by 2025, returning to 2020 levels by 2030. It achieved 100% renewable energy use in overseas subsidiaries and offices in 2024 and aims for 60% company-wide by 2030, and 100% by 2040. TSMC uses 85% recycled wastewater. Green buildings and factories are a standard.

Social

The company prioritises human capital, offering competitive compensation, comprehensive benefits, and a focus on human rights and an inclusive workplace. Extensive training and development programs are in place. Employee turnover is low (3.5% in 2024).

Governance

TSMC advocates operational transparency and strong shareholder rights. The Board of Directors, comprising diverse and experienced professionals (70% independent directors), oversees corporate governance, risk management, and executive succession planning. The ESG Steering Committee and ESG Committee oversee climate and nature management, including water, with regular reporting to the Board of Directors. An Enterprise Risk Management (ERM) framework is aligned with ISO 31000 and COSO standards.

TSMC’s Internal Water Conservation Efforts: A Foundation of Resilience and Efficiency

TSMC demonstrates a robust and multi-faceted approach to water conservation, both within its own operations and through its contribution to the broader semiconductor ecosystem, which significantly enhances its investment proposition. 

The company’s leadership in water stewardship is a critical factor underpinning its long-term operational resilience, cost efficiency, and strong ESG profile, thereby attracting sustainable capital and mitigating environmental risks.

Targets and Framework

• Water Positive – TSMC introduced a long-term goal to become “Water Positive” by 2040 across all its global fabs, meaning it aims to restore more water than it consumes. This demonstrates a proactive stance beyond mere reduction.
• Unit Water Consumption Reduction – The Company targets a 30% reduction in unit water consumption (litres per 12-inch equivalent wafer mask layer) by 2030, compared to a 2010 baseline.
• Water Recycling Rate – TSMC aims for greater than 60% replacement of water resources with reclaimed water by 2030. The process water recycling rate for TSMC’s fabs and subsidiaries reached 88.1% in 2024.

Key Measures and Achievements

• Water-Saving Measures – TSMC implements four major water-saving measures: improving the water production rate of the system, reducing facility system water consumption, increasing wastewater recycling, and decreasing water discharge loss. In 2024, these efforts led to an additional 5.54 million cubic meters of water savings, while the total amount of recycled water from its recovery systems reached 284.6 million cubic meters.
• Reclaimed Water Integration – TSMC is a pioneer in using reclaimed water for semiconductor manufacturing processes. Its Southern Taiwan Science Park Reclaimed Water Plant, operational since 2022, is the first private water reclamation plant in Taiwan. By the end of 2024, over 19.65 million cubic meters of reclaimed water had been used in TSMC’s Tainan fabs, reducing city water usage by 31% and achieving a 17% replacement rate. TSMC successfully introduced reclaimed water into 5-nanometer and 3-nanometer advanced processes in 2024, a significant technological feat. The Company plans to extend its reclaimed water usage expertise to overseas operations, including the TSMC Arizona Reclaimed Water Plant project.
• Groundwater Restoration – At its JASM site in Kumamoto, Japan, TSMC actively promotes groundwater recharge projects, restoring five million cubic meters of groundwater in 2024, equivalent to three times JASM’s water consumption, achieving a water-positive status for the area.
• Innovative Wastewater Treatment – TSMC has achieved a 95% average removal rate for per/poly fluoroalkyl substances (PFAS) from process wastewater using drinking water-grade bituminous coal Granular Activated Carbon (GAC) adsorption filtration technology. Optimization of ammonia-nitrogen wastewater treatment reduced chemical agent consumption by 30% and improved electrical conductivity by approximately 40%, achieving dual benefits of efficiency and environmental protection. The overall wastewater pollution reduction index reached 63% in 2024, surpassing the annual target.
• Water Risk Management – TSMC uses the WRI water risk assessment tool to identify risk levels in its operating regions and implements mitigation measures such as elevating site elevations and installing flood gates in new facilities to address potential water-related risks.

Contribution to Customer and Industry Water Conservation

Apart from its own internal actions, TSMC extends its water conservation impact to its customers and the broader semiconductor industry through technology and collaboration.

• Energy-Efficient Products – TSMC’s advanced process technologies enable customers to design and produce significantly more energy-efficient chips, crucial for HPC and AI applications, where processing demands are immense. Energy-efficient chips reduce the overall electricity consumption of data centres, which in turn lowers their Scope 2 water consumption (water used in electricity generation). TSMC’s role is critical in areas like liquid cooling for data centres, where efficient chips are essential. Studies show that liquid cooling technologies can achieve significant blue water consumption savings, especially when paired with renewable energy.
• Responsible Supply Chain – The company also collaborates with its suppliers to promote water conservation, encouraging the setting of water-saving targets and providing training to enhance these capabilities.(5)

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