The Fluid Economy: Water as an Emerging Investment Opportunity

Global water resources are under increasing pressure from the demands of growing populations, water-intensive industries like agriculture and energy, and more recently, high-consumption sectors—notably AI data centers. Developments in smart water technology are addressing this critical infrastructure gap and creating new opportunities for investors.

Rapid AI growth increases demand for water

AI is a major driver of water demand. Large data centers—the physical infrastructure for AI—can consume up to 5 million gallons of water per day, equivalent to the water use of a town populated by 10,000 to 50,000 people.¹

AI systems use water:

• Directly inside data centers to keep servers cool 
• Indirectly for power generation  
• During the manufacturing of semiconductor chips  

It is a common misconception that data center cooling is the biggest driver of AI water consumption. While data center cooling does play a key role, broader power generation needs put more pressure on water—the process of generating electricity, particularly from fossil fuels, is water intensive.

An even larger driver of water usage is semiconductor manufacturing, which is necessary for AI hardware. Arizona, a water-stressed landscape, is a major hub for chip fabrication, and the strains on water usage are even greater when AI infrastructure is built in areas already experiencing water scarcity.

Innovative market solutions for water demand

Both private and public companies are exploring a wide range of approaches to address global water needs and challenges, including:

• Recycling, reusing, and filtering water. Companies are creating and improving technologies to alleviate water scarcity in areas with high pre-existing water stress, such as desert regions with data centers. These regions face greater risk of regulatory scrutiny on water usage. 
• Innovation of methods to reduce water usage. Industries are emerging to meet the challenge of offsetting increased water usage and driving water efficiency. For example, companies are developing software that could reduce agricultural water usage in crop farming by 20%+. 
• Enhanced flood-risk management. This is a growing need globally. AI-powered forecasting is being used to study weather patterns and implement creative storm water management systems that help regulate the flow of storm water, reducing stress on older infrastructure. 
• Modernization of old infrastructure with more sustainable solutions. In developed markets, where pipes are often 40 to 50 years old, demand to replace them is high. Some providers are replacing old pipes with new versions made of recycled plastic to manage rainwater and limit stress on the system. Compared to metal, plastic pipes can be more economical, more durable, and require less energy use. 
• Boosting resilience of power utility networks. AI is being used to innovate and optimize grid communications networks for equipment utility operators. For example, with metering technology, AI algorithms can analyze smart data to detect unusual consumption patterns that indicate leaks from customers or within the distribution system. By analyzing real-time data, potential issues can be identified and addressed before they happen. 

As AI continues to accelerate productivity and drive industry development, market opportunities in water technology may continue to develop. Our Investment Strategy Group professionals create customized portfolios unique to each client, employing rigorous analysis, proprietary asset allocation analysis, and research.

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This article is based on a February 10, 2026 webinar, The Fluid Economy: Rethinking Water Through an Investment Lens. It featured Jeff Possick, co-head of Horizon Environment and Climate Solutions Sustainable Investing at Goldman Sachs; Sebastian Gruhn, co-portfolio manager in Global Environmental Impact Equity at Goldman Sachs; and Katya de Graaf, client portfolio manager in Fundamental and Quantitative Equities at Goldman Sachs.