Discussions of the AI boom’s massive energy requirements have been making headlines for years, but the impact extends beyond the electric grid with respect to communities and the environment. Water usage in AI computing processes has been sidelined as a quieter conversation, but it is a tremendous bottleneck.
The AI boom's water footprint continues to expand in regions from the East Coast to the Great Lakes, all the way to California. A mid-sized data center consumes as much water as a small town, with larger ones requiring up to 5M gallons of water every day – enough for a city of 50,000 people. In fact, if water use trends continue, U.S. data centers could require volumes comparable to New York City’s average daily supply of 1M gallons per day through 2030.
Direct water use to cool data center server rooms and chips is not the only issue at hand. Around 50% of the electricity used by U.S. data centers can be attributed to fossil fuel power plants, which use significant volumes of water to heat up steam to operate turbines. Not to mention, the millions of microchips that process information each consume thousands of gallons of water in the manufacturing process.
As the proliferation of AI continues throughout industries, hyperscale data centers alone are expected to consume between 16 billion and 33 billion gallons of water annually by 2028. Without intentionality on the part of data center developers and operators, nearby communities will feel the impacts, with reduced access to potable water. Lawmakers are grappling with concerns around how to balance economic development with rising water use, among the other challenges associated with data center development.
Despite these crucial considerations, venture capital currently overwhelmingly flows into the power and generation side of AI, while water innovation remains underfunded.
Why this matters now: Environmental and climate justice considerations
Data center water use does not only pertain to resource constraints; it’s a justice issue. Data center development is currently trending towards water-stressed areas. In fact, two-thirds of new data centers built or in the process of development since 2022 are in areas already experiencing high water stress levels. Communities dealing with water shortages will soon be in competition with data center operators for clean water, a basic necessity.
For example, Northern Virginia, now often referred to as “Data Center Alley,” has experienced a 63% increase in water consumption from data centers since 2019. Loudoun County, which had around 200 operational data centers as of 2025, used 899 million gallons of water in 2023, significantly increasing the county water utility’s reliance on potable water for data center use instead of reclaimed water. Additionally, a study found that data centers in Texas will use as much as 399 billion gallons in 2030, the equivalent to lowering Lake Mead’s water content, the largest US reservoir, by 16+ feet in a year.
As the AI boom continues, further evaluations find that data center development trends could exacerbate existing challenges facing communities. There are estimates that a sizable portion of data centers are located in clusters characterized by high or very high environmental justice burdens impacting human health and health equity, as measured by the CDC, like air and water pollution or park access. Data centers development often trends toward a strong social vulnerability correlation according to the study as well.
In places like Virginia and Texas, data center water consumption trends will not only eventually strain local clean water supplies and increase bill prices, but communities will not experience economically proportionate benefits relative to this resource use. While benefits such as the creation of jobs and the generation of revenue for local or state governments via taxes could sweeten the deal for residents, long-term public cost burdens could outweigh the positives. Investments in infrastructure from water systems to transmission lines to electric updates quickly add up. Inroads to ensure proper transparency and accountability around water use by data center developers are also essential.
Where venture dollars are flowing and where they’re missing
The power and energy generation side of AI is receiving a large slice of the venture investment pie, while water tech receives a fraction. Climate tech investment has been anchored in addressing energy demands, largely attributable to data center growth. In 2025, data centers made up 78% of the Built Environment’s funding, with the swift development of AI infrastructure accelerating the need for power, including new clean firm capacity, grid flexibility, and backup power solutions. Yet, while water is one of the most vulnerable resources across the U.S., water tech received only a small fraction of climate tech funding, $1.2B, as recently as 2023.
The disproportion in focus in this situation increases systemic risk and fails to capitalize on crucial opportunities for everyone, from investors to technology companies to communities to the planet. As aging infrastructure and climate change place increased stress on water resources, this problem will only grow in severity.
Now is the time to turn to investments with potential for substantial impact. As more funds are allocated to this cause, risk will be reduced and increased resilience will be possible.
Spotlight on water-focused VC funds and start-ups
Dedicated water venture capital pools exist, and their success is critical. Take Burnt Island Ventures, which is focused on funding entrepreneurs whose projects seek to protect Earth’s most precious resource, water. Emerald Technology Ventures’ Water Fund is advancing water innovation across the globe.
Vital emerging investment areas include cooling innovation and water efficiency, water reuse and circular systems, leak detection and infrastructure intelligence, and industrial water optimization. Startups are already paving the way in these areas, and many are leveraging AI now to achieve their goals:
- Turing, an AI-powered water management software for treatment and networks, is enhancing efficiency, reliability and sustainability in the water lifecycle.
- HULO’s platform detects, sizes and localizes leaks within minutes to address water scarcity concerns for communities.
- FIDO AI achieves water network monitoring with accurate AI leak detection and leak sizing to help humans make consistently better decisions about managing the world’s most precious resource.
It’s exciting to see these companies making waves, but looking at the broader, nascent water technology ecosystem, there is room for growth, and scaling of capital is the most effective way to achieve the development we need.
AI investment continues to be a priority across the board for many venture investors. With this in mind, the continued development of data centers to support these trends depends on physical systems. Without sufficient investment in water, alongside energy and power generation, the industry risks shifting from an energy bottleneck to a water bottleneck.
In the coming years, the savviest investors will look to water-related innovation with the same urgency and emphasis we’ve seen on energy technology. Generalist VCs should do their due diligence and explore opportunities to invest (and where possible, alongside water specialist VCs), with entrepreneurs who are addressing challenges related to our most precious, yet precarious, resource.
