The water industry is facing higher demand as aging infrastructure needs to be replaced while the buildout of data centers needs to maximize its water use, which gives companies like Xylem (NYSE: XYL) an advantage.
Additional critical investments need to be made into the water sector as equipment for both industrial and commercial use has gotten older, presenting an opportunity for Xylem.
In 2025, the 15 largest regulated, private water companies invested nearly $6.8 billion to improve infrastructure needs, according to the National Association of Water Companies. In addition, the U.S. Environmental Protection Agency said the U.S. needs to invest an additional $1.26 trillion in water and wastewater infrastructure over the next 20 years or about $63 billion annually.
Orders for equipment increase by double-digits
A major global water technology company, Xylem’s portfolio of equipment and services is vast, including the treatment and testing of water for public utilities alongside its commercial, industrial and residential customers. The company operates four business segments: water infrastructure, applied water, measurement and control solutions, and water solutions and services.
Xylem generated $9 billion in revenue in 2025 and has a presence in over 150 countries with 22,000 employees. In 2025, 58% of Xylem’s total revenue was from sales to U.S. customers and 42% was from sales to customers outside the U.S. The company anticipates a similar revenue profile for the future, according to its 2025 annual report. Xylem has 400 offices, plants and warehouses in over 50 countries.
The company has production facilities in Europe, North America, Latin America, Asia and the Middle East. In the Middle East, the company has four subsidiaries in the United Arab Emirates along with a manufacturing plant, one in Saudi Arabia and one in Qatar, the report said.
Xylem reported revenue rose by 2% to reach $2.3 billion during the second quarter while the number of orders skyrocketed by 42% on a reported basis to reach $3.1 billion. Net income reached $263 million and its margin increased by 1.5% to 11.3% due to improved operational performance and lower restructuring and realignment costs. Xylem also beat Wall Street estimates during the first quarter.
Management updated its 2026 guidance to $9.2 billion, a 2% increase on a reported basis, compared to the 2% to 3% previously guided, and an increase of 2% to 3% on an organic basis, compared to 2% to 4% previously guided due to headwinds from delays in its electric metering projects in the measurement and control solutions segment.
“We are optimistic about the long-term outlook as we believe Xylem is poised to capitalize on growth in the life sciences, food and beverage, power generation, mining, and semiconductor end markets,” wrote Krzysztof Smalec, an equity analyst for Morningstar.
Xylem’s organic orders increased by 41% year over year, including over 300% growth in data center orders.
Demand for the manufacturing of semiconductors, mining and power generation has risen due to the needs of more AI infrastructure, said CEO Matthew Pine.
“The demand drivers behind our business continue to strengthen,” he said as more industrial and utilities customers are increasing their capital expenditure budgets.
Shares of the company fell by 20% during the past year, but have slowed down to a 4.6% drop in the past month.
Xylem’s surge in orders includes a 20-year, $850 million order to treat water for an unnamed chemical company.
The company’s ability to provide equipment and services to a diverse group of customers, provides more opportunity for growth in industries not only in utilities and data centers, but also in hospitals, semiconductors, pharmaceuticals and food and beverage companies, said Deane Dray, a RBC analyst, according to a Barron’s article.
The buildout in data centers and continued droughts in the U.S. will increase the need to find solutions to both conserve and recycle water, he added. He rated Xylem’s stock outperform with a target price of $157 a share.
Investors can expect earnings growth over the next several years due to the end markets that Xylem serves, said Michael Halloran, an analyst with Robert W. Baird, according to a Barron’s article.
“Xylem’s a great stock over a two-plus year horizon,” he said in April. “You just need orders to start moving. Starting three, six months from now is when it will really start working.”
Growth has been hampered by the weaker residential and commercial construction markets and some utilities have slowed down the pace of new projects. But the company could garner more interest from companies building data centers and other industrial projects.
Deals bolster offerings
Xylem has acquired several companies in recent years to increase the number of products it can offer its customers which often sign longer term contracts of 15 to 20 years.
In 2026, the company spent $1.46 billion to buy the Cornell Pump and Roper Pump businesses from Indicor to broaden Xylem’s participation in industrial and municipal applications for customers who need more advanced pumping needs such as agriculture, construction and mining, food and beverage and energy industries.
The company also acquired Evoqua Water Technologies, a water treatment solutions and services company, for $7.5 billion in 2023.
“After Xylem’s several strategic acquisitions, including Sensus in 2016, we believe the company can offer utilities a comprehensive portfolio of solutions aimed at addressing the problem of nonrevenue water, including pumps, sensors, smart meters, and leak detection, as well as a data management platform to monitor and analyze data from all these products,” wrote Smalec. “We believe the ability to cross-sell these products and link them together will make Xylem a one-stop shop for utilities.”
Xylem will likely see continued growth as decades-old water infrastructure needs to be updated, the construction of data centers to meet the demands of artificial intelligence will continue and the scarcity of water needs efficiency solutions.
Comments