Investing directly in artificial intelligence startups promises lofty returns but is also risky, as it is far from certain who will be left by the wayside in the boom and whether the industry will grow as forecast.
To help reduce this risk, many investors are plowing money into safer stocks of more well-established companies that stand to benefit by serving the data centers that house the computers that crunch the numbers for AI computations. The safer bets are utilities, both those that provide electricity to power servers and others that provide water to cool them.
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Water utilities provide a bulwark not only against downturns in the AI industry, but also against pullbacks in other industries. That’s because people and businesses will need water regardless of economic conditions. While it’s unlikely that utilities will outperform growth stocks when the market is doing well, you’ll be glad to have utilities during market downturns when riskier stocks are out of favor.
“I think the main thing that investors should know about water investments in general is that water is essential and non-discretionary,” says Dan Buckley, chief analyst at DayTrading.com. “Water demand doesn’t take a hit in downturns like most other services.”
In addition to supplying AI data centers, water is in increasing demand as the global population grows, becomes more urban and increases standards of living. Supply is at risk as climate change makes droughts worse.
“Water has become an economics problem,” says Richard D. Armstrong III, senior advisor at Faith Investor Services. “Retail and industrial volume is expected to expand while freshwater supply dwindles.”
At the same time, aging infrastructure poses a challenge to meeting demand for water even as the need to deal with a group of chemicals known as PFAS, often called “forever chemicals,” in the water system gains attention.
“Literally trillions of dollars in global capex is needed for pipes, treatment plants, reservoirs, pumping stations and other core water assets,” Buckley says.
With that in mind, here’s a look at seven top water stocks and exchange-traded funds, or ETFs, that include utilities as well as other types of companies:
| Stock/ETF | Forward Dividend Yield | Market Capitalization |
| American Water Works Co. Inc. (ticker: AWK) | 2.6% | $25.3 billion |
| Pentair PLC (PNR) | 1.1% | $16.7 billion |
| Xylem Inc. (XYL) | 1.1% | $34.4 billion |
| Veralto Corp. (VLTO) | 0.5% | $25.2 billion |
| Consolidated Water Co. Ltd. (CWCO) | 1.6% | $571.1 million |
| Invesco Water Resources ETF (PHO) | 0.5%* | $2.2 billion** |
| First Trust Water ETF (FIW) | 0.7%* | $1.9 billion** |
*30-day SEC yield as of Dec. 31.
**Total assets as of Jan. 8.
American Water Works Co. Inc. (AWK)
American Water Works is one of the largest utilities of any type and is bigger than some electricity providers. As the largest regulated water and wastewater utility in the U.S., the company provides services to residences, public buildings and businesses. It also has long-term military contracts that provide an extra layer of stability.
“American Water Works is a leading regulated utility with a lower correlation to other water utilities and the broader market,” Buckley says. That lower correlation means that when other stocks are on the backfoot, AWK might hold up better.
The company’s growth strategy comes from rate base expansion and acquisitions, Buckley points out. He says the stock is a bit expensive at roughly 22 times forward earnings, but that is what the market is paying for regulated returns and predictable cash flows.
Pentair PLC (PNR)
Over the years, this water treatment company has amassed a large stable of brands serving commercial, infrastructure, industrial, residential and agricultural customers.
It provides filtration, pump equipment, spray systems, commercial ice solutions, water and beverage equipment, water treatment components, and residential pool and spa equipment.
The company has a global footprint, with locations in North America, Europe, Asia and Australia, allowing it to take advantage of the global need for water solutions.
Xylem Inc. (XYL)
Named for the plant tissue that transports water and nutrients up from the soil, Xylem has utility, industrial, commercial and residential customers around the world. “Xylem’s advantage comes in terms of infrastructure and its smart water tech gives it recurring service revenue,” Buckley says.
Xylem gets about 40% of its revenue from recurring value-added services on existing water treatment systems and infrastructure, Buckley notes.
Additionally, Xylem, Pentair and American Water don’t have a strong correlation to each other, according to Buckley, as American Water is on average only 25% to 28% positively correlated with Pentair and Xylem; the latter two have a moderately positive correlation to each other. That means that these three stocks offer a micro-diversification play within a water investment portfolio.
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Veralto Corp. (VLTO)
This company provides water-quality testing equipment used by utilities and industrial clients. It specializes in ultraviolet disinfection and reverse osmosis filtration, technologies used in purifying water.
“Regulatory tailwinds should favor the company given its focus on testing and monitoring water,” Armstrong says. “I think continued water scarcity and population growth paired with aging infrastructure plays directly into their hand.”
He adds that Veralto’s business model is capital-light, and the company has a strong balance sheet. “I think they will continue to rise,” he says.
Consolidated Water Co. Ltd. (CWCO)
Desalination is a high-growth-potential technology that may become more common as a source for fresh water. Consolidated Water is a seawater desalination company that supplies drinking water to two of the three most populated areas on Grand Cayman Island.
It has long-term contracts with government utilities in the Cayman Islands, the Bahamas and the British Virgin Islands, giving it exposure to the tourism industry in the Caribbean. In addition to water-related products, the company also designs, constructs, sells, operates and manages water infrastructure.
“They have been on fire,” Armstrong says. “Water investment is headed toward reuse and desalination, which is a strong element of the company’s diversified services.”
Invesco Water Resources ETF (PHO)
Beyond water utilities, which are a bedrock for communities around the world, other companies are working on technology for water conservation and purification.
To help capture this value, Wall Street has created an number of mutual funds and exchange-traded funds that can broaden investor reach and reduce risk. Investors who want to go the ETF route, either in lieu of individual stocks or in addition to them, can consider this fund. It invests in companies that create products that conserve and purify water for homes, businesses and industries.
Buckley likes this U.S.-focused ETF as well as its global cousin, the Invesco Global Water ETF (PIO).
“For the ETFs, the main argument is that you get the entire sector in one while limiting single-stock risk or exposure to just one business model,” Buckley says.
PHO has an expense ratio of 0.59%, or $59 in annual fees on a $10,000 investment.
First Trust Water ETF (FIW)
This well-established water fund tracks an index of companies that derive a substantial portion of their revenues from the potable water and wastewater industry. Companies in the index are involved in water distribution; infrastructure such as pumps, pipes and valves; purification and filtration; and ancillary services like consulting, construction and metering.
“The First Trust Water ETF provides diversification to the industries and utilities, therefore enabling investors to enjoy the growth in the industry,” says Paul Ferrara, senior wealth counselor at Avenue Investment Management.
FIW has an expense ratio of 0.51%.
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7 Best Water Stocks and ETFs to Buy originally appeared on usnews.com
Update 01/09/26: This story was previously published at an earlier date and has been updated with new information.
