Earnings mentions of AI have skyrocketed from a mere 500 in Q1 of 2022 to more than 30,000 in Q3 of 2023, per the recent Technology Vision 2024 report from Accenture. That figure has risen a staggering sixfold just since the release of ChatGPT in November of 2022.
Given the veritable torrent of artificial intelligence talk by tech companies (some of which is almost certainly “AI washing”), one would think that Wall Street would be beating down the doors of any AI investment worth its salt.
And while that’s largely true, there is one AI-related investment that big tech would, frankly, rather not say anything about at all.
Water.
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There are credible estimates that a single interaction with ChatGPT (5-50 queries; so perhaps a single question and a few follow-ups or a brief “conversation”) consumes 500ml of (primarily) potable water, the equivalent of a typical bottle of water.
In their 2023 Environmental Report, Google alone disclosed that their water consumption in 2022 was 5.6 billion gallons, up 20% from 2021.
And they’re not alone. Microsoft saw similar spikes in its own water consumption, which rose 34% from 2021 to 2022, to nearly 1.7 billion gallons, per their 2022 Environmental Sustainability Report.
The water consumption in question is owed largely to the proliferation of large (hyperscale) data centers, which consume huge quantities of water for cooling and humidity management, to say nothing of water consumed by chipmakers in the production of those data center chips. (Global chipmaker water consumption is estimated to rival that of the city of Hong Kong and its 7.5 million residents.)
The usage is ubiquitous amongst large tech companies, with Amazon (for their web arm, AWS), Meta Platforms and Apple also using billions of gallons annually.
Now, to give the (thirsty) devils their due, four of the five companies listed above (excluding Apple) have committed to becoming either water-neutral or water-positive (returning more water to the ground than they consume) by 2030.
But with data center growth (and water consumption) showing no signs of slowing down, there’s a case to be made that parched server farms are turning water into a fringe AI investment in its own right.
The downside of taking the water angle on AI is that you’re unlikely to experience the massive speculative upside of a pure-play AI investment such as a software company or chipmaker.
The upside, however, is that it’s a more conservative angle that’s less likely to get caught up in the market’s AI-driven hype cycle.
Plus, it’s more straightforward. It doesn’t matter whether Dall-E 3 or Midjourney is the better AI image generator, nor does it matter whether Google’s Gemini (nee Bard) gobbles up market share from OpenAI’s ChatGPT or Microsoft’s Copilot. All of them will be slurping up groundwater for years to come.
Investors looking to put a little water weight into their portfolios would be well-served by any number of ETFs. The First Trust Water ETF (FIW) is a fund we’ve written about before. With $1.5 billion (give or take) in assets under management (AUM), it also happens to be one of the larger water-focused funds. It’s up just shy of 6% YTD with an expense ratio of about 0.5% and a modest yield of 0.7%. This fund broadly invests in companies that derive the majority of their revenues from potable and wastewater services.
The Invesco Water Resources ETF (PHO) is an equally large ($1.9 billion AUM) fund with a similar yield and expense ratio (both right around 0.6%) but is a more concentrated portfolio that prioritizes water conservation and purification. It’s also modestly outperforming FIW, up 7.5% YTD.
The Invesco S&P Global Water Index ETF (CGW) is a slightly smaller fund ($900 million AUM) that has comparable expenses, but a higher yield (1.6%) and lower YTD returns (up 2.7%). CGW invests globally in the largest companies in the water business and thus offers more exposure to utilities (hence the higher yield and lower performance).
Global water management is likely to have long-term tailwinds as the climate changes and, for now at least, it also happens to be the one AI investment that the tech companies don’t want you talking about.
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