The rapid expansion of global data center infrastructure, driven by AI technology, is leading to a concerning issue regarding the water required to cool these facilities. This issue is not only a financial risk but also poses operational and reputational challenges for data center operators.
A recent report by Moody’s highlights the escalating “water stress” in key data center markets. The report specifically points out water scarcity as a growing credit risk for data center operators, especially for hyperscale providers supporting AI workloads that demand denser compute power and higher thermal loads.
As cloud computing and hyperscalers continue to build or lease new data centers to meet the increasing computing demand, their water consumption is straining resources in certain markets. The report warns that developers who do not utilize water-efficient systems may face scrutiny from regulators and investors.
One of the main concerns is the reliance on water-based cooling systems in most new large-scale facilities. While these systems are efficient for high-density computing, they significantly increase total water consumption. Moody’s emphasizes the importance of using water-efficient systems to avoid regulatory and financial issues.
John Medina, senior vice president of Moody’s global project and infrastructure finance, points out the risk of groundwater scarcity in fast-growing hyperscale regions like the southwestern U.S., Chile, and India. He mentions that developers may need to relocate data center projects to more water-friendly locations due to local regulations and infrastructure constraints.
Hyperscale facilities can consume millions of liters of water per day, comparable to small urban areas, depending on climate and infrastructure design. Despite this high water consumption, major hyperscalers such as Google, Microsoft, AWS, and Meta have committed to becoming “water positive” by 2030, aiming to replenish more water than they use.
To address the water challenges, data center operators are adopting proactive measures during site selection and design phases to mitigate resource concerns. Technologies like liquid cooling and adiabatic systems promise lower water usage but come with their own set of risks and complexities.
The industry is striving to balance environmental goals with uptime requirements and financial viability. Operators are exploring alternative cooling systems like air-based or hybrid systems and considering options such as greywater reuse, modular cooling designs, and closed-loop systems.
Despite these efforts, data centers face increasing competition with local communities and agriculture in water-stressed regions. As water stress intensifies, regulatory scrutiny and reputational risks will heighten, impacting growth and costs.
While tech giants have set water-positive goals, the rapid expansion of AI-driven infrastructure challenges these targets. Achieving net water positivity requires not only conservation but also local replenishment, often in arid or overdrawn watersheds.
Investors are beginning to focus on water-related upgrades, with some operators turning to green bonds and sustainable financing. Municipalities are also introducing impact assessments before approving new data center builds, reflecting the tightening ESG criteria and new water usage regulations.
As AI technology pushes the thermal limits of compute hardware and local authorities emphasize resource management, water is becoming a critical input to digital infrastructure. Operators are investing in advanced cooling technologies to reduce water use without compromising uptime, although new waterless technologies present maintenance risks.
In conclusion, the viability of new data centers may increasingly depend on local water conditions alongside power availability and fiber routes. As the industry moves towards increased sustainability, addressing water challenges will be crucial for the long-term success of data center operations.
