Dear Community,
As this is my first post here, I am looking forward to your feedback and whether it offers any added value for you. If you wish, I will also add fundamental figures in the future.
Back then, some time ago, I invested directly in the Vanguard FTSE All World
$VWRL (+1.13%) and - more specifically - in the iShares Global Water $IH2O (+1.44%) bought in. My train of thought was simple: nothing works without water, humans are made up of around 60% of it (depending on age) and the raw material is becoming increasingly scarce or has to be reprocessed for us.
In the meantime, I have learned a lot from you and I am no longer sure whether I would invest in an entire sector ETF again today. But: I can't let go of the topic of water. I even claim that water companies are the secret winners of the AI boom. Why? Because data centers, (small) reactors and the massive hunger for energy (keyword: cooling) would be completely lost without a perfect water infrastructure.
That's why I took a closer look at a few companies that caught my eye during my research (almost exclusively via aktien.guide):
The "hardware" faction
- Xylem Inc. $XYL (+0.76%)
: These guys and gals are basically the top dogs / top cows when it comes to pumps and sensors. They do everything from wastewater technology to digital monitoring. Opportunity: The global backlog of pipeline renovations plays right into their hands. Risk: When the economy weakens, less is built - Xylem notices this immediately.
- Pentair PLC $PNR (+2.27%)
: Particularly exciting for me because of the data centers. They manufacture highly efficient industrial pumps and heat exchangers. As the trend is moving away from air cooling towards liquid cooling, Pentair is right at the source here.
Specialists & suppliers
- Ecolab $ECL (+2.04%)
: They probably work directly with Google and Microsoft, among others. The aim here is to chemically treat the water in the data centers so that less is consumed. A classic "sustainability play".
- American Water Works $AWK (-0.04%)
: This is the largest US utility. Many US data centers are simply connected to the public grid. More data traffic = more cooling demand = more revenue for the utility. Sounds boring, but it's an extremely stable cash flow as long as regulation plays along.
- Veralto $VLTO WI (-0.08%)
: A spin-off from Danaher. They focus on water quality. This is particularly critical for the planned mini-reactors (SMRs) - if the cooling water becomes corrosive, you have a real problem.
The "planners" and niche players
- Stantec Inc. $STN (+0.3%)
: Not a hardware builder, but the architects behind it. When Big Tech plans a new center, Stantec provides the concepts for water, waste water, disposal and generally an environmentally friendly harmony. No excavator moves without their approval expertise.
- Georg Fischer AG (GF) $GF (+0.92%)
: A "hidden champion". The Swiss make specialized piping systems from plastic and metal. In data centers and especially in reactors, nothing must leak, GF supplies the appropriate, durable systems.
- Roper Technologies $ROP (+0.16%)
& A.O. Smith $AOS (+1.58%)
: Roper is more of a software conglomerate for digital control (Smart Water), while A.O. Smith - originally known for heaters - is increasingly moving into industrial temperature control.
A look at the scales: opportunities vs. risks
Of course, all that glitters is not gold - not even with "water stocks". If you look at the players above, you also have to read between the lines:
Why the whole thing could - continue to - fly (opportunities):
- The "moat" (moat): Many of these companies have extremely deep specialized knowledge. Once a company like Ecolab is deeply involved in the processes of a Google data center, you don't just change them. That makes for sticky sales.
- Regulation as a tailwind: environmental regulations are becoming stricter worldwide. Companies have to invest in order to retain their water certificates. For Veralto or Xylem, this is like a built-in guarantee of growth.
- SMR hype: If the small modular reactors really do come on such a scale, they will need massively precise cooling technology. Specialists such as A.O. Smith or Georg Fischer are at the forefront, because standard solutions would simply be too unsafe.
Where it could hurt (risks):
- Capital intensity & interest rates: building water infrastructure is expensive. If interest rates remain high, companies suffer because they constantly have to take out loans for new pipes and plants.
- Politics & bureaucracy: Politics often determine how much prices can be increased, especially for utilities. A new government (or a stricter regulatory authority) can quickly eat into your margins.
- Economic dependency: Even though we always need water, new investments aren cyclical. If the construction industry weakens, Pentair or Georg Fischer sell fewer pipes and pumps for new projects.
- Valuation risk: Because everyone is currently discovering the topic of "AI infrastructure", many of these shares (such as Roper) are no longer a bargain. You often pay a considerable premium for the hope of the future.
My conclusion: Water is often the "forgotten wheel" on the AI wagon. Everyone often only looks at companies such as Nvidia or the energy suppliers, but the physical limit for the scaling (!) of data centers is often simply water. In dry regions such as Arizona, the recycling concept determines whether a site is approved at all. So here you are investing in the foundation of digitalization.
What do you think, shovel manufacturers?
Preview: If you don't tear me and my first post to shreds here, I'll next take a look at companies that deal with the disposal of uranium waste and contaminated water (reactors and SMRs). Also a pretty "dirty" but possibly lucrative business.
Best regards and thanks again for the great community ✌🏼
Anderlé
