The first objection, often raised and essentially at the heart of the debate, is that water is an essential commodity that people need to survive. Luxury and everyday consumer goods are a matter of choice; water consumption is not.

That is true. But water is not merely a shared resource, such as a well, which itself requires maintenance. Supplying water requires the construction and maintenance of a distribution network and, not least, technological progress. Water recycling and treatment are constantly improving, and someone has to pay for technological development and infrastructure expansion.

When a Business Is Not a Sure Thing

There are essentially three ways to address the moral and political dilemma of who regulates and sets water prices.

The first is the continental model, found in the Czech Republic and Slovakia. The state – or primarily municipalities – owns the infrastructure. Water prices are regulated, while private companies mainly provide operations and technological solutions.

The strength of this model lies in oversight of water prices. Its weakness is the question of who will pay for the increasingly expensive renewal and maintenance of water infrastructure. Pipelines and treatment facilities age regardless of who owns them. No politician wants to raise water prices significantly, as re-election may depend on it, so repairs are postponed. While delaying them may be electorally expedient, it can mean higher investment costs in the future.

The second is the American model, in which the private sector plays a much larger role. A typical example is American Water Works, whose shares can be bought on financial markets.

The fundamental difference between the European and American models is that these companies own the pipelines, treatment plants and other infrastructure. They do not merely operate the system. Thus, outdated pipelines are not bad news for shareholders – as they are for city council members in European cities – but rather an opportunity to earn more, as regulators approve price increases based on these investments. Spending on maintenance can therefore mean higher profits.

The most radical of the three is found in England and Wales. Since the late 1980s, following a decision by Margaret Thatcher, everything there has been privatized – from operations to water infrastructure. It therefore goes furthest in applying market principles.

The English example has hardly provided a convincing answer to the question of how far the state should intervene in a private industry. The clearest example is Thames Water, the largest British water utility, which supplies approximately 16 million people in London and southern England.

At the start of privatization, it was debt-free. Today, its debt stands at £20bn ($27bn). Thames Water has been teetering on the brink of bankruptcy for several years. Instead of private capital delivering efficient management, generous dividend payments were accompanied by mounting debt. The company will most likely end up back in state hands. The circle will be complete.

Thus, even the privatization of the entire water supply chain is not, in and of itself, a panacea.

Three Models, Same Pipelines

For all its apparent simplicity, running a water utility is complicated, especially because of tensions between private companies, government regulators and politicians. That complexity is reflected in the stock market. The MSCI ACWI Water Utilities Index, which includes more than 47 companies from around the world operating in the sector, has performed weakly.

Although 2025 was an exceptional year and the index rose by 22.3%, its average annual return over the past 10 years stands at an anemic 6.2% – only slightly above inflation. Despite its steady long-term gains, investing in water is rather boring compared with the potential of the technology sector or companies specializing in artificial intelligence. It simply will not deliver fairy-tale gains of hundreds of percent.

The Best Business Is Not in Water

A much more attractive route lies with companies that supply technology to the water sector. These are not primarily network operators but manufacturers of pumps, filtration systems, sensors, metering equipment and other technological solutions. Many are represented in the MSCI ACWI IMI Water Filtered Index, which also includes companies such as Xylem, Veralto, Alfa Laval and Veolia.

The figures appear to support the case for technology over water distribution itself. Between 2016 and 2025, this index generated an annualized return of approximately 11%, taking compound interest into account. That is nearly twice the annualized gain of an index composed exclusively of water utilities.

Investments in water will likely never be as exciting to investors as tech companies or betting on today's AI boom. In a way, that is a good thing. Water is not an exponential-growth story built on the belief that the next product will change the world. It is an infrastructure business that requires constant investment if we want a high-quality and accessible supply. Wastewater treatment plants must meet increasingly stringent standards, and water must be delivered reliably to people.

That does not mean the sector lacks an interesting future. Quite the contrary. AI could give the sector a new boost in two ways. Data centers will require increasing amounts of water, as well as infrastructure for cooling, while utilities can use the technology to better manage distribution, detect leaks, predict outages and operate networks more efficiently.

Water may not be another form of artificial intelligence, but it is essential both for AI to function and for human life. As investment theses go, it is a simple one.