With the recent market pullback, I like Xylem as a pure-play water tech giant with very good macro tailwinds. Had it on my radar for a while but was always too expensive, now after the pullback and not really doing much the last 5 years, multiples have contracted drastically to (in my opinion) reasonable values. Evoqua Acquisition is now also largely complete and the company seems to be growing again.
**Valuation Multiples & Guidance**
**2025 Revenue:** $9.04 Billion
**2026 Guided Revenue:** $9.2B – $9.3B
**Forward P/E Multiple:** \~20
The Upside: Xylem historically commands a premium 30–50x P/E. The current discount is largely driven by management proactively stepping away from lower-margin revenues via their "80/20" simplification program to protect and expand long-term margins.
**The Four Segments**
**Water Infrastructure (\~30% / \~$2.64B):** Dedicated to the essential engineering processes of collecting, transporting, treating, and safely returning wastewater to the environment.
**Water Solutions & Services (WSS) (\~30% / \~$2.4B)**: Unifies the massive Evoqua acquisition with legacy dewatering to offer full-scale industrial treated water systems and field operations.
**Measurement & Control Solutions (\~20% / \~$2.1B):** Deploys smart meters, software, and network sensors to help utilities track, analyze, and optimize their water delivery networks.
**Applied Water (\~20% / \~$1.85B):** Supplies specialized pumps and valves for water usage across residential, commercial (HVAC), and industrial building systems.
**Recurring Revenue**
**The Sticky Moat**: Roughly **40% to 50%** of total revenue is now highly resilient recurring revenue, anchored by aftermarket parts, multi-year maintenance contracts, and digital software subscriptions. This percentage has been growing steadily over the last few years (also thanks to the Evoqua acquisition).
**The AI Footprint**: Direct data center cooling sits at just \~1% of total revenue right now. However, Xylem is capturing additional tailwinds from the broader AI ecosystem - specifically the hyper-water-intensive power generation, semiconductor fab, and mining sectors. Additionally, their AI-driven platform (Xylem Vue) is helping utilities shave up to 25% off their energy bills.
**The Macro Catalyst:**
**Utility Mergers & WaaS Consolidation is Coming:** The massive pending $40B merger between American Water Works ($AWK) and Essential Utilities ($WTRG) highlights a major shift: utilities are combining scale to fund the massive CapEx required for aging infrastructure and strict new environmental standards.
**Easier Contracts**: The US water infrastructure map is still notoriously fractured among thousands of small municipalities. Consolidation creates larger, centralized corporate decision-makers - which translates to smoother, more massive contract wins for a one-stop platform like Xylem. Also regulatory challenges and scrutiny for fresh water consumption have prompted hyperscalers (such as Amazon), to partner with Xylem and fund projects to remain net neutral or return more water than consumed.
**Water-as-a-Service (WaaS):** Instead of forcing clients into heavy upfront CapEx, Xylem's aggressive focus on WaaS shifts the burden to OpEx by billing utilities purely on treated water volume. Also makes it impossible for municipalities to switch if they don’t want to finance the upfront cost themselves (Xylem also has higher margins in this segment than the hardware only sales)
Also let’s not forget that in the US water is contaminated with PFAs and even if the Trump extended the deadline, it’s not going to fix the problem. Actually, every year reinvestment is dragged out, the total bill is expected to increase by billions each year