This article first appeared in Wealth, The Edge Malaysia Weekly on May 25, 2026 – May 31, 2026
Artificial Intelligence (AI) continues to be one of the most powerful long-term growth themes globally. Massive investments are flowing into data centres, cloud infrastructure and advanced semiconductors to support the rapid expansion of AI capabilities.
However, beneath this digital revolution lies a very real and growing physical constraint — water. As AI infrastructure scales up, so does its demand for water, a scarce resource already under pressure from climate change and population growth. This challenge is creating a less obvious but compelling investment opportunity in companies enabling water-efficient AI infrastructure.
AI’s water usage is due to several sources.
First, data centre cooling. Large AI data centres generate intense heat and have traditionally relied on water-intensive cooling systems.
Second, electricity generation. AI workloads drive higher power demand, much of which depends on water for thermal power generation.
Lastly, semiconductor manufacturing. Advanced chips require vast quantities of ultrapure water during fabrication.
While improvements in AI efficiency may reduce computing costs, history suggests this may not lower overall resource use. As costs fall, adoption accelerates, potentially pushing water demand even higher.
At the same time, global water stress is already severe. The World Resources Institute (WRI) estimated that about half of the world’s population experiences severe water stress for at least one month a year, a figure expected to worsen significantly by 2050.
Governments are no longer treating AI infrastructure as a purely technology issue. As the fight for resources heats up, water and sustainability factors are now central to policy decisions. Examples include the rejection of water-intensive data centre projects in the Netherlands.
In Singapore, new data centre developments have been temporarily banned. Correspondingly, these actions have benefited resource-rich countries such as Malaysia.
These actions suggest a clear trend: future AI growth must be water-efficient. Winners and losers will be determined by new measures of success that encompass new infrastructure and resource management. For investors, this shifts attention towards companies that help AI expand within environmental and regulatory constraints, rather than those exposed to rising sustainability risks.
Rather than seeing water constraints as a headwind to AI, we view these as a structural tailwind for specific solution providers. There are two segments that stand out: liquid cooling technologies and water recycling and treatment solutions.
Liquid cooling systems are significantly less water-intensive than traditional evaporative cooling and are increasingly popular for high-density AI workloads. As regulators push for efficiency, the adoption of these systems is likely to accelerate.
Data centres and semiconductor fabrication consume large volumes of ultrapure water. Technologies that enable water reuse, wastewater treatment, desalination, membrane-based filtration and reverse osmosis are becoming essential infrastructure rather than optional upgrades. Together, these solutions offer investors exposure to AI growth while aligning with sustainability objectives.
Within this theme, several global industrial and materials segments have clear exposure to AI-related water solutions, spanning cooling optimisation, water treatment, filtration and reuse technologies. Firms in these segments typically benefit from long-term infrastructure spending cycles, regulatory support for sustainable solutions, strong ESG profiles and recurring demand from mission-critical facilities.
Importantly, this theme does not require picking the “next AI champion”. Instead, it focuses on enablers — companies providing essential inputs without which AI growth becomes constrained.
From a portfolio perspective, the AI × Water theme offers several advantages:
• Diversified exposure to AI beyond software and semiconductors;
• Lower regulatory risk, as these businesses are aligned with policy objectives;
• Sustainability integration, appealing to ESG-conscious investors; and
• Long-term visibility, supported by infrastructure-driven demand.
For investors looking to participate in the AI revolution while managing environmental and regulatory risks, water solutions can serve as a high-quality complementary allocation within a well-constructed portfolio.
AI’s future growth will depend not only on algorithms and computing power, but also on physical resources like water. As regulations tighten and sustainability becomes non-negotiable, companies that help AI do more with less water are set to play a critical role.
For investors seeking long-term sustainable portfolio performance, this creates a compelling opportunity at the intersection of technology, infrastructure and sustainability, one that investors often overlook at the expense of portfolio diversification and risk management.
Michael Lai is executive director of wealth advisory (wealth management) at OCBC Bank (M) Bhd
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