The Thirsty Tech: How Data Centers Depend on Water and Energy

Hello, Reader.

Water, water, every where,

Nor any drop to drink

These lines from Samuel Taylor Coleridge’s “The Rime of the Ancient Mariner” describe a sailor who finds himself surrounded by saltwater yet unable to quench his thirst. Oddly enough, a similar predicament is faced by the data centers fueling artificial intelligence.

As we discussed in Monday’s Smart Money, while AI itself does not directly consume water, the data centers that host AI technologies do. Much of this water is used in cooling systems, which keep server racks from overheating. Additionally, these centers indirectly use water through their electricity consumption.

Many people are surprised to learn just how much water is needed for generative AI applications like ChatGPT. Research led by Shaolei Ren, an associate professor of electrical and computer engineering at the University of California, Riverside, reveals that…

GPT-3 needs to “drink” (i.e., consume) a 500ml bottle of water for roughly 10-50 responses, depending on its deployment context. These numbers may increase for the newly-launched GPT-4, which has a significantly larger model size.

In today’s Smart Money, we will delve into the water consumption of data centers within the framework of global trends, and I will discuss potential opportunities that arise from this situation.

Understanding Global Water Trends

In the United States, water often seems abundant. Even in drought-stricken states like California, many pools remain filled. However, despite water making up 71% of the planet’s surface, most of it is saltwater or trapped in ice caps.

Only a tiny fraction — less than one percent — of Earth’s water is fit for human use. This small amount supports 8.2 billion people, feeds crops, cleans food, and powers various industries. The leftover supply simply cannot afford to waste water elsewhere, especially when basic human needs aren’t met.

The United Nations states that living a dignified life requires about 1,000 gallons of water per day, factoring in both direct usage and agricultural needs. Yet over 2 billion people globally lack access to reliable, safe drinking water.

The situation is compounded by the increasing demand from industrial users, which is putting pressure on existing water supplies. Over the past 40 years, water consumption has risen by about 1% each year. Now, the data center sector is positioned to take an increasing share of this limited resource.

The timing of this demand is not very favorable. A recent report by the Global Commission on the Economics of Water highlights a concerning imbalance in our global water system, which relies on evaporation and precipitation to cycle water around the planet.

Johan Rockström, co-chair of the commission, stated,

For the first time in human history, we are pushing the global water cycle out of balance. Precipitation, the source of all freshwater, can no longer be relied upon.

To address these challenges, the commission advocates for reevaluating water’s role in economies and raising aggregate water prices to promote sustainable use.

While the data center industry will adapt to find water, it will likely come with increased costs.

Some companies, such as Amazon.com Inc.’s (AMZN) Amazon Web Services (AWS), are seeking to mitigate their water use through various recycling projects. AWS aims to become “water positive” by 2030, investing in 13 international water restoration projects.

However, these initiatives primarily serve as offsets and do not provide direct water for their data centers. This situation is akin to planting orange trees in Florida to make up for oranges harvested from California.

Emerging Opportunities

Data centers not only consume vast amounts of water but are also major consumers of electricity.

The energy demands of data centers have surged. In fact, the combined electricity consumption of tech giants Amazon, Microsoft Corp. (MSFT), and Meta Platforms Inc. (META) increased by over 80% in recent years.

This trend is expected to persist. Data centers accounted for approximately 1.3% of global electricity demand in 2022, and projections from Goldman Sachs suggest this could exceed 4% by 2039, with over 8% of U.S. electric power demand.

Fortunately, my colleague at InvestorPlace, Louis Navellier, has identified a promising company that stands to benefit from the growing energy needs of data centers.

This company specializes in custom-engineered power solutions and automation systems, which are essential for efficient power management in data centers. Their products enhance safety and operational efficiency.

The demand for this company’s solutions is robust, and Louis believes it has the potential to increase its value by 100% or more within the next year.

To learn more about this company and the approach Louis used in his analysis, click here.

Regards,

Eric Fry