What you're reading: We built Luniter because we love science and want to know what's coming next, and which companies are actually building it. We track 200 of them. Every Monday we pick the one story from that world we think is worth your time and explain it in plain English. It takes about ten minutes. If you're new here, welcome.

Part III of III: The Hyperscaler Bill

A big data center consumes as much water in a day as about 2,600 households. So when we started this issue, we expected water to be one of the AI buildout's major costs. It is not. In dollars, the water at the building turns out to be so small as to be a rounding error. The water that matters sits upstream, at the power plants that feed the building, and almost nobody is measuring it. This is the final part of our three-Monday series on where the buildout's money goes, and it stands on its own.

Some scale first. The buildout is spending about two billion dollars a day on construction. Out of each of those dollars, about 67 cents buys chips, about 18 cents pays the electricians who wire the buildings, and about 7 cents builds the cooling plant: the pumps, pipes, chillers, and towers that carry the heat back out. One detail tripped us at first. That 7 cents buys the machinery the water flows through, not the water itself. The water is not a line on the construction bill, and we could not find it as a line on any public bill. Only one research group has seriously tried to price it. Epoch AI modeled a one-gigawatt campus and got about six million dollars a year for the water, inside total yearly costs of about eight and a half billion. That is the building's entire water bill, in dollars. A sliver too thin to draw.

On site, cooling works roughly the way sweat does. Water evaporates, and the heat leaves with it. That on-site use came to about 66 billion liters across US data centers in 2023, by the Lawrence Berkeley National Laboratory's count. The second use is far away, at the power plants and reservoirs that make their electricity, because generating electricity consumes water too. That upstream use came to nearly 800 billion liters, roughly an order of magnitude more, and the gap depends on the grid, because different power sources consume very different amounts of water.

The industry is engineering the on-site usage away. Vertiv, which builds cooling gear, now sells a sealed, non-evaporative system it says needs "effectively zero ongoing water usage" after the initial fill, alongside a service that cuts the water used to commission a new data center by up to 95 percent. Microsoft began introducing designs in 2024 that use no water for cooling at all. But sealed loops trade water for electricity. The heat still has to leave the building, so dry coolers and chillers draw more power, and that power is generated somewhere with its own cooling water. The industry itself argued the trade to Texas lawmakers in June. Amazon's cloud division testified that on the Texas grid about 0.9 liters of water are consumed for every kilowatt-hour, and that without water cooling, data centers would use 14 percent more energy. On a clean grid, a sealed loop genuinely shrinks the total. On a thermal-heavy grid, it can move more water upstream than it saved on site. The water line does not disappear. It moves.

How would anyone know which grids and which towns feel that demand? Right now, mostly nobody would. Texas held a hearing on this in June, and the numbers were blunt. Only 17 percent of data centers answered the state's mandatory water-use survey last year. Ignoring it is a misdemeanor with a maximum fine of 500 dollars, and the statute's sharper penalties, losing eligibility for state water permits and funding, do not bite companies that buy from city systems, which is nearly all of them. In roughly eighty to a hundred of the state's 254 counties, depending on how you count, there is no groundwater conservation district at all, so the old rule of capture applies. No limit, no permit, no metering of groundwater pumping. One lawmaker put it plainly. "We're making huge decisions on bad data." The state water board's planning director went further, telling lawmakers the sector reminded her of the beginning of fracking, a new industry holding its information close.

So what are the water companies actually earning from all this? We track thirteen of them (utilities, desalination, meters, valves, treatment, and engineering firms), and all thirteen reported earnings between July 2 and August 10. We checked every release and call. Seven talk about data centers. Six do not, including every company in the tier whose business is the water itself: American Water, the biggest US water utility; American States, a California utility; and Consolidated Water, a desalination specialist. And where the talkers put a number on the business, the number is small. Xylem's data-center orders grew 300 percent last quarter, and it expects data-center revenue to reach about 2 percent of its sales by year-end. Mueller calls the category one of its fastest growing and still small. The full scoreboard is below, name by name.

The quiet makes sense once you see how the water arrives. An estimated 97 percent of data centers buy their water from city systems, so there is no big supply contract to win. We checked all thirteen names, and none has a disclosed contract to supply water to a data center. The hyperscalers' disclosed water spending is civic instead. Microsoft paid 25 million dollars to upgrade the water system of Leesburg, Virginia, and Amazon has committed 235 million dollars to replenishing groundwater in Oregon. Checks to cities, not contracts for supply. The first true supply agreements, for reclaimed water, are being negotiated this year, and utilities are only now designing data-center rate classes. When those contracts come, they will be milestones more than catalysts. The water is cheap at the meter today. Whether the new rate structures change that is exactly what nobody can price yet.

Last week gave a clean example of what investors are paying for now. Consolidated Water's stock closed 6.9 percent higher the session after it reported, and its release contains zero data-center language. The market paid for the water business itself — a 25-year water-supply license on Grand Cayman, and desalination projects. Our scoring system agrees with the silence. Ecolab, the tier's loudest data-center story, ranks 176th of the 200 companies we track. American Water ranks 175th. Only one of the thirteen, Tetra Tech, clears the level our system labels a strong signal. The scores read filings and prices, and they cannot see contracts that have not formed.

One company ties the series together. Tetra Tech is a consulting and engineering firm that does a great deal of water work, and it counts its backlog, the book of future work it reports to investors, more strictly than any company we looked at. Only work that is contracted, funded, and authorized makes the number. Its data-center orders are real and sit inside that strict count, and it sizes them out loud. The work is feasibility studies and engineering around power and water supply, about 60 million dollars this year, around 1.4 percent of its expected net revenue.

Scorecard — Tetra Tech (TTEK)

The picture in one line: the strongest card in our water tier, fourth of the 200 companies we track, priced 17 percent below its 52-week high.

The most careful claims in the tier and its strongest card belong to the same company.

Alongside the scores we run the Opinionated Machinery, a rules-based, fully simulated portfolio system, published in the open. It made no trades again this week, and it has held Tetra Tech in all three of its books since May; every buy predates the July disclosure of the company's data-center orders.

That is the series. Three Mondays, one construction bill. The chips are priced and covered everywhere. The electricians are being repriced as the market asks which order books are signed money and which are softer. And the water splits in two. At the building, it is real but small, six million modeled dollars a year on a gigawatt campus, priced at the EPA's average commercial rate because there is nothing contracted to use instead. On the grid, the volumes are far larger and almost nobody is measuring them. If the buildout keeps growing, the water demand it creates lands mostly at the power plants, because on a thermal grid every kilowatt-hour consumes water. That is the number we will be watching. The cooling plant made the bill. The water is still not a line on it. When the first disclosed water-supply contract appears, we will print it.

Anthony

The Luniter Observatory