Data centre boom boosts water stocks

On the one hand artificial intelligence, the most advanced frontier of tech, and on the other water, the primordial life-giving good. Two very distant worlds but in reality more integrated than we think. To understand this, one only has to look at the performance of the main ETFs that invest in securities linked to water services: these are clones that are moving at all-time highs, with graphs that have similarities to the movements recorded on Wall Street. A tendentially acyclical sector that has become very exposed to economic variables.

The mystery is soon unravelled. Data centres, which are used to run cloud technology, are crucial for developing artificial intelligence and have water as an essential commodity. Indeed, the cooling systems used to keep servers at the right temperature require huge amounts of blue gold. According to an analysis by Alexander Roll, Investment Strategist at Global X, large data centres can use up to 5 million gallons per day (about 1.32 million litres). This means that a single AI data centre can consume the daily water equivalent of nearly 2,000 households. According to Global X, by 2028, global consumption related to AI data centres could reach 1.068 trillion litres annually, 11 times the 2024 levels.

It is not only this item. Global demand for water could grow by up to 25 per cent by 2050, also driven by population growth. On the supply side, unsustainable use and poor infrastructure weigh heavily. The intensive use of water resources represents a major challenge for this precious commodity, competing with agriculture, cities and industry. This is combined with the problems created by global warming as well as droughts and the increasing desertification of many areas.

Tomorrow is World Water Day: alongside the historical shortages of this essential commodity in the world, the issue of data centres will certainly take centre stage. Major tech groups are studying alternative solutions to reduce environmental impacts, but this is the picture at the moment, and with the exponential development of AI, quick answers are required to prevent the environmental situation from having serious repercussions.

There are three leading water ETFs (Ishares, Amundi and L&G) that have been gaining total returns of between 63 and 78 per cent since the beginning of 2020. The most noticeable acceleration in prices has occurred in the last two years precisely at the same time as the AI boom. These clones replicate benchmark indices that invest in the major global companies in the sector (US but not only) These results are broadly in line with the global utilities index, which have also benefited in recent years from falling interest rates.