Texas data centres to consume 49 billion gallons of water in 2025 amid worsening drought, raising ESG risks for investors

Amid Texas’s ongoing drought, the burgeoning data centre industry is poised to consume an staggering 49 billion gallons of water this year, raising critical questions about sustainability and resource allocation in one of America’s fastest-growing tech hubs. This projection underscores a broader tension between technological advancement and environmental constraints, particularly as artificial intelligence (AI) and cloud computing drive unprecedented demand for data infrastructure. Investors eyeing opportunities in tech infrastructure must now weigh these water-intensive operations against potential regulatory risks and long-term viability, especially in water-stressed regions like the Lone Star State.

The Scale of Water Consumption in Texas Data Centres

Texas has emerged as a magnet for data centre development, lured by abundant land, favourable tax incentives, and proximity to energy sources. However, this growth comes at a steep environmental cost. Projections indicate that data centres across the state could use up to 49 billion gallons of water annually for cooling purposes, equivalent to the yearly water needs of millions of households. This figure, drawn from recent analyses, highlights how evaporative cooling systems—essential for maintaining optimal server temperatures—evaporate vast quantities of water, often irretrievably lost to the atmosphere.

To put this in perspective, a midsized data centre typically requires around 300,000 gallons of water per day, comparable to the consumption of about 1,000 average homes. Larger facilities, such as those supporting AI training models, can demand up to 4.5 million gallons daily. In San Antonio alone, facilities operated by major tech firms and government entities reportedly consumed 463 million gallons between 2023 and 2024, even as local residents faced Stage 3 drought restrictions limiting lawn watering to once per week. Such disparities have sparked debates over equitable resource distribution, with projections suggesting statewide data centre water use could balloon to 399 billion gallons by 2030—enough to fill over 600,000 Olympic-sized swimming pools.

The drought gripping Texas exacerbates these issues. As of mid-2025, much of the state remains in moderate to severe drought conditions, straining aquifers and reservoirs. The Edwards Aquifer, a key water source for central Texas, has seen levels drop significantly, prompting conservation mandates for households and agriculture. Yet, data centres often secure exemptions or priority access through industrial agreements, allowing them to draw from municipal supplies without the same restrictions imposed on residents. This dynamic not only heightens local tensions but also poses operational risks for operators if water shortages lead to forced curtailments.

Implications for Tech Giants and Infrastructure Investors

Major players like Microsoft, Meta, and others are at the forefront of this expansion. Microsoft’s Stargate campus in Abilene, for instance, has been linked to substantial water draws, with reports indicating it used hundreds of millions of gallons over recent years. These facilities are critical for AI development, where immense computational power generates heat that must be dissipated efficiently. However, the water footprint is drawing scrutiny from environmental groups and policymakers, potentially leading to tighter regulations on water usage or mandates for more efficient cooling technologies.

From an investment standpoint, this trend illuminates both opportunities and pitfalls in the data centre sector. Real estate investment trusts (REITs) specialising in digital infrastructure, such as those focused on hyperscale facilities, have enjoyed robust growth, with the global data centre market projected to reach $500 billion by 2030 according to analyst models from firms like McKinsey. In Texas, the influx of AI-driven projects could boost local economies through job creation and tax revenues, but investors should monitor water-related risks. A prolonged drought could escalate costs if operators are compelled to source water from pricier alternatives or invest in closed-loop cooling systems, which recycle water but require significant upfront capital.

Analyst sentiment from sources like Morningstar remains cautiously optimistic on data centre stocks, citing strong demand from cloud providers. However, they flag environmental, social, and governance (ESG) factors as potential headwinds. For example, if Texas implements stricter water allocation policies—similar to those in Arizona, where data centres faced moratoriums in 2023—project timelines could delay, inflating development costs. Investors might look to companies pioneering sustainable practices, such as air-cooled systems or greywater recycling, which could command premium valuations in an ESG-conscious market.

Broader Economic and Regulatory Context

Texas’s appeal for data centres stems from its deregulated energy market and renewable energy boom, with wind and solar providing cheap power. Yet, water scarcity adds a layer of complexity. The state’s water infrastructure, already challenged by population growth and climate change, may struggle to accommodate this surge. By 2030, AI data centres alone could account for a notable portion of Texas’s industrial water use, potentially rivalling sectors like agriculture, which consumes about 60% of the state’s water according to historical data from the Texas Water Development Board.

Regulatory responses are emerging. In July 2025, reports from outlets like the Austin Chronicle highlighted calls for greater transparency in data centre water usage, with some lawmakers proposing audits and efficiency standards. This mirrors global trends; in Europe, the EU’s Green Deal imposes carbon and water footprint reporting on large tech operations. For U.S. investors, such developments could influence stock performance in related sectors. Analyst models from Goldman Sachs forecast that water stress could add 5–10% to operational costs for data centres in arid regions by the end of the decade, potentially eroding margins unless mitigated by innovation.

Investment Strategies Amid Resource Constraints

Navigating this landscape requires a balanced approach. Diversification into water-efficient technologies offers one avenue; companies developing liquid immersion cooling, which uses less water than traditional methods, are gaining traction. Investor sentiment from verified sources like BloombergNEF suggests a bullish outlook for sustainable tech, with venture funding in cleantech surpassing $10 billion in 2024.

Conversely, the irony of AI’s environmental toll—tools designed to solve complex problems like climate modelling now contributing to resource depletion—adds a dry humorous twist. One might quip that data centres are turning Texas’s droughts into a literal hot topic, but the stakes are serious. Long-term, investors should assess exposure to water-vulnerable regions. Analyst-led forecasts from Deloitte predict that by 2035, global data centre water consumption could triple, prompting shifts toward locations with abundant hydropower, such as the Pacific Northwest.

In Texas, the path forward may involve public-private partnerships to enhance water infrastructure, potentially unlocking federal funding under the 2021 Infrastructure Investment and Jobs Act. For now, the 49 billion gallon projection serves as a stark reminder: unchecked growth in data centres could quench the thirst for data at the expense of literal thirst, compelling investors to prioritise resilience in their portfolios.

References

• Austin Chronicle. (2025, July 25). Texas is still in drought – and AI data centres are quietly guzzling up water. https://www.austinchronicle.com/news/2025-07-25/texas-is-still-in-drought-and-ai-data-centers-are-quietly-guzzling-up-water/
• Newsweek. (2025). Texas data centre water use: Artificial Intelligence’s hidden cost. https://www.newsweek.com/texas-data-center-water-artificial-intelligence-2107500
• San Antonio Current. (2025). San Antonio data centres guzzled 463 million gallons of water as area faced drought. https://www.sacurrent.com/news/san-antonio-data-centers-guzzled-463-million-gallons-of-water-as-area-faced-drought-38116670
• DataCenters.com. (2025). Texas water crisis: The impact of data centre developments on a fragile resource. https://www.datacenters.com/news/texas-water-crisis-the-impact-of-data-center-developments-on-a-fragile-resource
• Texas Scorecard. (2025). Data centres’ thirst for water challenging state infrastructure. https://texasscorecard.com/state/texas-data-centers-thirst-for-water-challenging-state-infrastructure/
• NYU IFP. (2025). Texas drought and AI data centre water use. https://ifp.nyu.edu/2025/news/texas-is-still-in-drought-and-ai-data-centers-are-quietly-guzzling-up-water/
• The New York Times. (2025, July 14). Meta’s data centre water use under scrutiny. https://www.nytimes.com/2025/07/14/technology/meta-data-center-water.html
• WebProNews. (2025). Texas AI data centres drain millions of gallons amid drought crisis. https://www.webpronews.com/texas-ai-data-centers-drain-millions-of-gallons-amid-drought-crisis/
• Principia Scientific. (2025). AI data centres used 463 million gallons – residents told to take shorter showers. https://principia-scientific.com/ai-data-centers-in-texas-used-463-million-gallons-of-water-residents-told-to-take-shorter-showers/
• Natural News. (2025, August 2). Texas AI data centres’ water use amid drought limits. https://www.naturalnews.com/2025-08-02-texas-ai-data-centers-water-drought-limits.html
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