By Al Root
Water, water everywhere, but...is too much going to artificial-intelligence data centers? That's the challenge -- and opportunity -- facing industrial stocks that specialize in H2O.
AI is the growth engine of this stock market, driving everything from utility earnings to SpaceX's planned $2 trillion initial public offering. That makes it important for investors to understand any potential AI bottlenecks. While power gets all the attention, water is a growing issue. More-powerful AI chips need water to cool them, and managing that increasingly scarce resource is now mission-critical for any hyperscaler that wants to maintain good public relations and be a reasonable steward of the environment.
The issue is only going to get more critical. Nvidia's H100 chips are currently the most widely deployed AI chip. They can still be cooled by what are essentially big fans blowing air from a giant air conditioner. Such air conditioners, like home ACs, are essentially closed-loop systems, in which a refrigerant circulates within a sealed system. Newer chips use more power, necessitating new cooling solutions, including direct-to-chip cooling, where a plate is attached to the processor. It's a bit like the way car engines are cooled, with coolant circulating through the equipment. Eventually, chips will need to be cooled by immersing the server in a liquid and with special evaporating liquids, though that's still years down the road.
This will require lots of water. Morgan Stanley estimates that AI water use will grow to more than 1,000 billion liters by 2028, or 400,000 Olympic-size swimming pools. That includes water for power generation, much of which gets recirculated, as well as for cooling and other purposes, so the ultimate amount may be less. Still, it will be up to industrial companies to build systems that can cool chips in efficient closed-loop systems, with as little waste as possible. Here are six stocks that should benefit.
Eaton
Packaging power and cooling together is a competitive advantage -- and Eaton, a hardware and software provider for data centers, is on its way to doing just that. In March, Eaton closed on its acquisition of Boyd Thermal, which provides both power and cooling for AI data centers. That makes the company a system provider, which gives it an edge over companies that provide only components, says Janus Henderson research analyst William Brothers. The deal also gives Eaton 500 more engineers specializing in cooling tech. With expected earnings growth and its recent valuation, shares could fetch about $470 in a year, up 19% from recent levels.
Schneider Electric
Like Eaton, Schneider Electric provides both electrical hardware and software for data centers. That is the result of its acquisition of 75% of Motivair in February 2025, which brought expertise in cooling distribution units and direct-to-chip cooling plates in house. The deal has been a tailwind for Schneider. RBC Capital analyst Mark Fielding forecast total sales growth of 9% a year through 2030, up from roughly 6% annually over the past three years. He rates shares Buy and has a $68.40 target for the U.S.-listed American depositary receipt, up 10% from recent levels.
Vertiv Holdings
Vertiv Holdings didn't need to make an acquisition to merge power and cooling technologies -- it already had them. The stock has returned 70% annualized over the past five years, but there's no reason it can't keep rising. Shares jumped 25% on Feb. 11 after fourth-quarter numbers, which showed orders had grown 252% year over year. Earnings estimates for 2026, now at $6 per share, rose 40% over that span. The stock trades at 46 times expected earnings over the next 12 months, but profits should grow by 34% annually over the next three years. And Wall Street tends to underestimate Vertiv's earnings.
Modine Manufacturing
Modine Manufacturing isn't a household name, but D.A. Davidson's Matt Summerville calls it a "best in class" data-center play. Modine provides everything data centers need to cool chips: rear-door heat exchangers, AC units, chillers, and coolant distribution units. Overall sales grew 7% in fiscal 2025, driven by 28% growth in its Climate Solutions segment, helping earnings before interest, taxes, depreciation, and amortization grow 25%. That growth, which should continue, justifies its price/earnings ratio of 32 times earnings over the next 12 months. After divesting its auto parts business later this year, Modine will be a pure-play cooling company.
Trane Technologies
After heat is removed from chips, data centers still need systems to manage and cool water. That's where Trane Technologies comes in. It builds coolant distribution units and air handlers , and is investing in immersion cooling, buying LiquidStack in March. Wall Street expects sales and earnings to grow by 8% and 13% a year on average, respectively, for the next three years. Above-average earnings growth is a big reason shares trade for 31 times earnings estimated over the next 12 months. Next-generation cooling could push profits higher. Bookings in Trane's Applied Solutions business, which serves data centers, grew 120% in 2025's fourth quarter.
Solstice Advanced Materials
Solstice Advanced Materials, which makes chemicals used in semiconductors, uranium hexafluoride for nuclear power, and refrigerants and coolants, was spun out of Honeywell International in October 2025. It serves a variety of industries, including data centers. Wall Street wasn't a huge fan of the stock when it spun out. Analysts expected earnings to grow at just 15% annually at the time of the spin. Investors were quicker to realize Solstice's potential. Shares are up 65% year to date, and analysts have come around too -- they now see earnings growing at a 20% clip annually through 2028.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 16, 2026 11:24 ET (15:24 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments