Arizona Faces Water Cut as Chipmakers Expand AI Factories

The 1,400-mile Colorado River provides more than a third of Arizona's water and is the state's biggest renewable source. But the Colorado River Basin has faced an "unprecedented" drought for more than a quarter century, according to the U.S. Bureau of Reclamation. Climate change is making the region drier while growing water demand adds to decades of overuse. More than 40 million Americans from Denver to Los Angeles rely on the river, and states have tussled for years over how to allocate the remaining water. Guidelines collectively known as the "Law of the River" expire this year. After states failed to reach an agreement on their own, the U.S. Department of the Interior finalized its own plan in August.

Arizona has been a manufacturing hub since the start of the semiconductor industry, and it is now where TSMC and Intel are expanding massive factories to make advanced chips for AI, a water-intensive effort. City planners and industry leaders have already taken precautions to conserve water and find alternative sources. Water is likely to become more expensive for manufacturers and residents alike as they learn to rely less on the Colorado River. That has already raised tensions over who shoulders the costs for new infrastructure needed to adapt, as well as what constitutes a good use of water.

Agriculture has been a major part of Arizona's economy since it became a state, and it still consumes more than 70 percent of the state's water. Industrial uses, including the chip manufacturing that has had a foothold in Arizona since the 1940s, account for just 6 percent. While semiconductor factories, or fabs, still use a small amount of water compared with agriculture, the chip industry is growing fast. Fabs use "ultra-pure" water to clean surfaces and etch sensitive chips. It takes more municipal water to create a smaller amount of ultra-pure water through deionization and reverse osmosis. A typical facility might use 10 million gallons of ultra-pure water a day, which could require up to 16 million gallons of municipal water.

New chip factories are sprouting up in Arizona's desert with the help of federal funding. President Joe Biden signed the CHIPS and Science Act into law in 2022, setting aside $52.7 billion to expand domestic chip manufacturing. Armed with a $7.86 billion grant from the government, Intel is planning to spend $32 billion on two new factories and an expansion of an existing facility in Arizona. In 2025, the company's facilities in Chandler, Arizona, withdrew more than 2.7 billion gallons of freshwater, according to its latest corporate responsibility report.

TSMC, the world's largest chipmaker, received up to $6.6 billion in CHIPS Act funding and decided to build at least six new semiconductor fabs in Phoenix. TSMC's first fab in Arizona uses roughly 4.75 million gallons of water a day, the company told The Verge last year. That is approximately equivalent to the water usage of more than 14,000 homes a day, or 2 percent of Phoenix's housing. The amount grows with each new fab the company builds and with the more advanced manufacturing processes TSMC is developing. The company recycles 65 percent of the water it uses in Arizona, TSMC says, a figure that is supposed to grow to at least 90 percent when it finishes building a water reclamation plant.

"Our economy is changing, and that's really painful," Kathryn Sorensen, research director at the Kyl Center for Water Policy at Arizona State University, told The Verge. "When there's a water scarcity issue you have to start looking at what the uses of that water are that bring the most value to the community." Sorensen, who previously worked as director of Phoenix Water Services, added: "There's not enough water for everything we want to do with it. So what do we have enough water for? What are the uses we most value? Is it cotton or is it microchips?"

Editor's Summary

Arizona is confronting a sharp cut to its Colorado River water supply as TSMC and Intel expand water-intensive fabs in the state. The federal decision and long-running drought are raising costs and tensions over how to allocate scarce water among agriculture, cities, and chip manufacturing. Both companies are investing in recycling and conservation, but the state's water constraints are expected to intensify as AI chip production grows.