Data Center Water Demand Lifts Watts Water 18% in 2025
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
watts-water-technologieswts
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Watts Water Technologies (WTS) reported a significant revenue acceleration in its fiscal year ending December 2025, driven by demand for its specialized cooling and water management products in data centers. The industrial manufacturer's stock price posted an 18% gain for the full year, outperforming key industrial sector benchmarks. According to reporting by finance.yahoo.com on 19 June 2026, this performance underscores a structural shift in industrial demand toward mission-critical cooling infrastructure for artificial intelligence and cloud computing facilities.
The demand for high-density data center cooling is a primary driver for industrial water system suppliers. The last comparable surge in related infrastructure spending occurred during the 2015-2018 cloud buildout, which drove annual revenue growth for leading valve and flow control companies above 12%. The current macro backdrop features sustained capital expenditure from major cloud providers, with forecasts from firms like Dell'Oro Group projecting data center capex to grow at a compound annual rate exceeding 15% through 2028.
What changed is the power density of new AI-optimized server racks. Traditional air-cooled data centers operate at 5-10 kilowatts per rack. New AI clusters require liquid cooling for racks exceeding 50kW, creating a direct need for sophisticated, leak-proof plumbing, precision control valves, and water quality monitoring systems. This technological shift triggered a re-rating of industrial component suppliers with exposure to this niche, moving them from general industrials to a more specific technology-enabling infrastructure category.
Watts Water Technologies' financial metrics illustrate the scale of this opportunity. The company's Data Center and Critical Environments segment revenue grew from $187 million in FY 2024 to an estimated $258 million in FY 2025, a 38% year-over-year increase. This segment now represents approximately 15% of total company revenue, up from 11% the prior year. The firm's overall FY 2025 revenue reached $1.72 billion, with organic growth of 8.5%, notably ahead of its historical 3-5% range.
Peer comparisons highlight the sector-wide effect. Xylem (XYL), a larger water technology peer, saw its applied water systems division, which serves data centers, grow at a 22% rate in 2025. In contrast, the broader Industrial Select Sector SPDR Fund (XLI) gained only 6% over the same calendar year. The valuation gap has widened: WTS trades at a forward price-to-earnings ratio of 23.5, a premium to its 5-year average of 18.7 and to XLI's aggregate P/E of 19.2.
| Metric | FY 2024 | FY 2025 | Change |
|---|---|---|---|
| Data Center Segment Revenue | $187M | $258M | +38% |
| Total Company Revenue | $1.58B | $1.72B | +8.5% |
| Stock Price Performance | -2% | +18% | +20pp |
The direct beneficiaries extend beyond Watts Water. Specialist cooling firms like Vertiv Holdings (VRT) and equipment suppliers such as nVent Electric (NVT) are seeing order books swell. nVent's liquid cooling enclosure sales grew over 40% in its most recent quarter. Losers include traditional data center REITs with older, air-cooled facilities, which face significant retrofitting costs or obsolescence risk, potentially pressuring funds from operations growth.
A key limitation is supply chain capacity. Lead times for certain precision cooling components have stretched from 12 weeks to over 26 weeks, which could cap near-term revenue realization for all players. water usage itself faces regulatory scrutiny in drought-prone regions, pushing investment toward closed-loop systems.
Positioning data shows institutional investors are accumulating shares in the niche. Net institutional inflow into WTS over the last quarter was $420 million, according to FactSet data. Hedge fund interest, measured by 13F filings, shows a 15% increase in the number of funds holding WTS shares, with several multi-strategy funds establishing new long positions paired with shorts on slower-moving traditional industrial distributors.
Three specific catalysts will dictate the next phase. The first is earnings reports from major cloud providers Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL) in late July 2026, where capex guidance for the second half will be critical. The second is the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) conference in January 2027, where updated thermal guidelines for liquid cooling will be published, setting industry standards.
Key levels to watch include the 50-day moving average for WTS, currently at $187.50, which has acted as support during recent pullbacks. A sustained break below $180 would signal a shift in momentum. For the sector, monitoring the ratio of the First Trust Cloud Computing ETF (SKYY) to the Industrial Select Sector SPDR Fund (XLI) will show whether the data center theme is continuing to outperform broader industrials.
Retail investors gain exposure not through direct utility investments but through industrial manufacturers and specialized ETFs. The thematic shift is creating a new sub-sector within industrials focused on critical infrastructure. Investors should assess a company's stated revenue exposure to data centers and its product portfolio for liquid cooling, as general water treatment firms may not see the same benefit. Research on water usage in tech is available at https://fazen.markets/en.
The current cycle's intensity is higher but more concentrated than past infrastructure booms. The 2000s telecom buildout boosted a wide range of suppliers, while the 2010s cloud expansion primarily benefited server and chip makers. The AI-driven 2020s wave is uniquely demanding for thermal management, creating a sharper, more specialized tailwind for a smaller set of firms with the requisite engineering and certification for mission-critical, 24/7 operation.
During the 2016-2018 industrial capex cycle, leading suppliers traded at an average forward P/E premium of 25-30% above the broader market. The current premium for firms like WTS and VRT is approximately 22%, suggesting room for multiple expansion if growth persists. However, these valuations historically contract rapidly if order growth decelerates for two consecutive quarters, as seen in early 2019 when the prior cycle ended.
The AI data center buildout is re-rating a subset of industrial suppliers based on direct exposure to high-growth cooling infrastructure demand.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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