5 companies profiting from increasingly expensive water

U.S. water utilities need to invest $625 billion over 20 years, industry and data centers are consuming ever more water, and regulation is tightening quality requirements. Five U.S. companies are benefiting from this trend, each through a different mechanism and at valuations ranging from 18x to 34x expected earnings.

Water is a resource the economy long took for granted as cheap and abundant. That is changing. Pipes laid in the mid-20th century are wearing out, regulators are requiring removal of lead and so-called forever chemicals PFAS, industry must conserve water, and data centers represent a new source of demand. Water utilities therefore must increase investment, and with it prices for customers.

For investors, it is important to distinguish two things. Rising water prices alone do not increase revenue for any of the five companies, because none of them sells water. They benefit indirectly: more expensive water increases the return on investment in metering, conservation, recycling, and quality control. Each company monetizes this pressure differently, and therefore their revenue stability, margins, and the price the market demands differ. All five companies will report third-quarter results between October 22 and November 4, 2026.

Why water represents a long-term opportunity

Aging pipes and investment backlog

According to the seventh EPA Drinking Water Infrastructure Needs Survey from April 2023, U.S. water systems need to invest $625 billion over 20 years, 32% more than in the previous survey. The American Society of Civil Engineers (ASCE), in its 2025 infrastructure report card, rates drinking water a C- and wastewater a D+. It also cites roughly 240,000 water main breaks per year and notes that only 20% of water utilities cover the cost of service through their own rates.

A major problem remains water losses in leaky networks. Every cubic meter that leaks from pipes must be pumped, treated, and repumped by the utility without being billable. The more expensive water becomes, the more these losses cost, directly supporting demand for leak detection and smart metering—i.e., products from Badger Meter and Xylem's Measurement and Control Solutions segment.

Quality regulation: lead and PFAS

The EPA survey identified approximately 9.2 million lead service lines with average replacement cost of $4,700, totaling over $43 billion in need. The federal IIJA infrastructure law allocated $15 billion for this. According to Harvard University's regulatory tracker, in May 2026 the EPA proposed keeping PFAS limits of 4 ppt for PFOA and PFOS, dropping standards for four other substances, and allowing water utilities to request a compliance deadline extension from 2029 to 2031. Regulation thus persists, but its pace is slowing. For companies exposed to water treatment and testing, this means a longer but more spread-out wave of orders.

Industry and data centers

Lawrence Berkeley National Laboratory estimates direct water consumption by U.S. data centers in 2023 at 17.4 billion gallons and projects growth to 38–73 billion gallons by 2028. In absolute volume this is a small fraction of total consumption, but operators require ultra-pure water, closed-loop cooling, and continuous monitoring. These requirements create high-value-added demand. In second-quarter 2026 results, data centers appeared as the main growth driver for four of the five companies.

Need is not yet spending

Outdated pipes are not replaced simply because they are outdated. The pace of investment is determined by regulator-approved rates, the size of state revolving funds, municipal bond interest rates, and political priorities. ASCE notes that revolving fund financing has been nominally stagnant since 2020. The structural need therefore creates a long runway of demand rather than acceleration in any specific year. Companies tied to public budgets, as Badger Meter shows in 2026, can experience weak periods even amid a long-term favorable trend.

Xylem

Business structure

Xylem $XYL is the largest pure-play water technology company in the U.S., with revenue of $9.13 billion over the last 12 months. In Q2 2026, revenue of $2.34 billion was split into four segments: Water Infrastructure ($683 million, pumps and water treatment for utilities), Water Solutions and Services ($644 million, service, rental, and outsourcing), Measurement and Control Solutions ($508 million, water and energy meters, analytics), and Applied Water ($501 million, pumps and fittings for buildings and industry).

How water creates revenue

Xylem earns from a combination of three sources. First is the utility investment cycle, as utilities purchase pumping stations, treatment plants, and metering networks. Second is aftermarket and service demand from the installed base of pumps. Third, and fastest-growing, is long-term service and outsourcing contracts. In Q2 2026, the company recorded the largest order in its history: an outsourced water project worth approximately $850 million. Management variously stated its duration as 20 and 23 years. Thanks to it, Water Solutions and Services orders rose from $577 million to $1,449 million.

Results and management outlook

Total orders grew organically by 41% to $3.09 billion, and backlog reached $5.3 billion. Revenue, however, grew organically by only 1%. Measurement and Control Solutions fell 6% due to delays in electricity meter installations, and Water Infrastructure is weighed down by China: local orders fell roughly 70% in Q4 2025. Profitability, on the other hand, is improving: adjusted EBITDA margin rose 1.5 percentage points to 23.3%, and adjusted EPS rose 16% to $1.46. Management raised its 2026 adjusted EPS guidance to $5.55–$5.70 but lowered its revenue outlook (about $9.2 billion).

Part of the margin improvement comes from deliberately exiting less profitable orders under the 80/20 principle, which management says costs about 2 percentage points of growth. According to the 10-Q quarterly report, the company repurchased approximately $1.24 billion of stock in H1 2026 and increased its net debt to adjusted EBITDA ratio to 0.8x.

Main question

Xylem is a quality franchise whose revenue is currently not growing. The stock has lost 29% over the past year and trades at 17.7x expected earnings. The thesis hinges on whether record orders and backlog translate into organic revenue growth of at least 4–5% during 2027. Return on invested capital (ROIC) of around 9% is the lowest among the five, partly reflecting goodwill from the Evoqua and Sensus acquisitions.