Given the recent UN World Water Day, equity portfolio managers Cornelia Furse and Alexander Laing discuss the role of artificial intelligence (AI) in driving water demand. The proliferation of datacentres to support AI growth, requires significant volumes of water for cooling systems, while semiconductor manufacturing requires water at all stages of production. However, there are companies in the AI value chain that are delivering sustainable water solutions.
The recent UN’s World Water Day was themed around preserving the glaciers. It’s a very important subject and emphasises the need to protect the supply of water. As equity investors in companies, the area we can more directly address is the use of water by businesses. Most investors have rightly focussed on the agriculture, energy, and industrial sectors given their high use of water, but technology is increasingly become a major demand base for the resource, particularly with the recent growth in AI.
An average ChatGPT query needs nearly 10 times more power than a Google search, and the huge, warehouse-like datacentres provide the infrastructure that drives solutions like ChatGPT. A typical datacentre spans 100,000 square feet but can range into the millions, and the buildings are being constructed at a faster rate and a bigger scale than ever before.
Datacentres generate significant heat from their servers and are increasingly looking to water to cool their equipment – as opposed to air cooling - given that water is more efficient, especially for high-power AI systems. Since the popularisation of ChatGPT from early 2023 and the subsequent Generative AI investment boom, water use by datacentres has surged. The US Department of Energy recently said it expects a 2-4x increase in datacentre water demand by 2028 and global use will be close to 300 billion gallons per year by the end of this decade.
This means is that companies that enable datacentres to reuse water are well positioned to grow their revenues. The datacentre liquid cooling market is worth around US$5 billion and is expected to grow to US$15-30 billion by 2030. Given the growth of the market and its water demand, it is important that companies develop, which can provide datacentre cooling sustainably.
One such example is Ecolab. It has long been a proponent of responsible water stewardship, with Water Impact goals for 2030 that cover quantifiable targets for water conservation. It is a co-founding member of the Water Resilience Coalition, a CEO-led initiative that brings together multi-national corporations to combat the global water crisis. Its products and solutions enable customers to manage their water needs, with services monitoring factors like the quality of water, flow rates, temperature, and pressure. Overall, it helped customers save 226 billion gallons of water in 2023, enough drinking water for 782 million people. Sales to datacentre clients are growing at 20-30% per annum.
Semiconductor production
While water is used mainly for cooling in datacentres, in a semi fab it is critical across almost all stages of production. Water withdrawals of leading semi producers are multiples of the hyperscalers’, making semis a particularly water-intensive part of the AI supply chain. A large fabrication plant processing around 40,000 wafers a month could consume up to 4.8 million gallons of water per day. Ultra-pure water is needed for cleaning processes, while wastewater needs to be treated and recycled.
Semiconductor manufacturing - a drain on water supply
Source: JP Morgan, September 2024.
Foundries adopt differing approaches to water management depending on the function; from effluent recovery (cleaning/recycling wastewater) to who they partner with for ultra-pure water supply, which is used to clean polysilicon. Foundries are keen to improve water circularity, which can enable capacity expansion in areas where water is a restricting factor, such as Taiwan Semiconductor Manufacturing Company’s (TSMC) fabs located in Arizona. The highest performing fabs can achieve 75-80% levels of water reuse, with a goal of reaching no discharge, although no fab has achieved this yet.
In a related point, TSMC’s recently announced US$100 billion investment program in the US to build five additional chip facilities highlights that the goal of a US manufacturing renaissance is real. This could unlock more opportunities for companies that specialise in handling/disposing of industrial waste.
Foundry and integrated device manufacturers are exposed to direct risks related to the availability, quality, and cost of water supply, as well as potential regulatory constraints. There may also be reputational risks where water is mismanaged, and local water sources are adversely impacted. Some estimate that semiconductor wastewater represents over a quarter of total wastewater discharged into the environment without treatment. Given these characteristics of chip manufacturing, semiconductor businesses are a key corporate engagement focus for us in pushing the industry to achieve better water stewardship outcomes.
