Arizona, an epicenter for the bipartisan push to revive American chip manufacturing, is about to lose more than a quarter of the water it typically pulls each year from the Colorado River.

The 1,400-mile waterway is a crucial lifeline for the region and other western states. A recent federal decision on how to manage its dwindling flow hits Arizona, and its already drought-prone desert communities, particularly hard. The river provides more than a third of the Grand Canyon State’s water. Arizona has been a manufacturing hub since the start of the semiconductor industry, and now it’s 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. It’s a resource that is likely to become more expensive for manufacturers and residents alike as they learn to rely less on the Colorado River. That’s already raising tensions over who shoulders the costs for new infrastructure needed to adapt, as well as what constitutes a good use of water. The challenges that come with managing a limited water supply are only going to grow as AI demands a larger share.

“Our economy is changing, and that’s really painful,” says Kathryn Sorensen, research director at the Kyl Center for Water Policy at Arizona State University. “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.”

Agriculture has been a major part of Arizona’s economy since it became a state, and still gobbles up more than 70 percent of the state’s water. Industrial uses, including the chip manufacturing that’s had a foothold in the state since the 1940s, account for just 6 percent.

While the amount of water that semiconductor factories, or fabs, use is still quite small compared to 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. It’s approximately equivalent to the water usage of more than 14,000 homes a day, or 2 percent of Phoenix’s housing. That 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’s supposed to grow to at least 90 percent when it finishes building a water reclamation plant.

The Colorado River is the state’s biggest renewable source of water. But the Colorado River Basin has faced “unprecedented” drought for more than a quarter century, according to the US Bureau of Reclamation. Climate change, unfortunately, is also making the region more dry as growing water demand adds to decades of overuse.

“There’s not enough water for everything we want to do with it,” Sorensen, who previously worked as the director of Phoenix Water Services, says. “So what do we have enough water for? What are the uses we most value?
Is it cotton or is it microchips?”

With 40 million Americans from Denver to Los Angeles relying on water from the Colorado River, states have been tussling over how to allocate the remaining water for years. Guidelines for how to manage that water, collectively known as the “Law of the River,” expire this year. After states failed to reach an agreement on their own, the US Department of the Interior finalized its own plan in August for how to move forward. It outlines steep cuts for downriver states: Arizona, Nevada, and California. Arizona stands to lose the most, at least 760,000 acre-feet of water a year starting in 2027. An acre-foot represents how much water it would take to cover an acre with a foot of water, and is enough to supply about three homes with water for a year in the Phoenix area. The City of Phoenix uses about 300,000 acre feet of water in a year.

Maricopa County, home to Intel and TSMC’s chip fabs, isn’t as reliant on water from the Colorado River as other counties. Its primary resource is groundwater, but surface water flowing from the Colorado and Salt rivers still make up close to 40 percent of the county’s supply.

Local leaders insist that Phoenix and other cities in the region are prepared for water cuts, citing plans to make up for the shortfall with underground water stores and other surface water sources. “For the most part, they’ve planned accordingly and can fall back onto water that was previously stored underground,” Sorensen says.

But even without sudden tap water shortages, Sorensen expects utility bills to climb over time. The transition to alternative water resources will entail new infrastructure, like new wells and pipes. That’s likely to be the most significant driver of higher tap water prices, Sorensen explains.

Meanwhile, the city of Phoenix is pushing back, with Mayor Kate Gallego arguing that the federal government’s decision to cut the state’s intake “does not provide the fair, basin-wide leadership the Colorado River crisis demands.” That said, “Phoenix is prepared for this moment because of decades of planning and conservation, we will push for new federal support to mitigate the rising cost of water that will result from this federal decision,” Gallego added in an August press release. A spokesperson for the city declined to comment further in an interview.

TSMC in particular, located in Phoenix, will be subject to the same price hikes as its neighbors. Phoenix is unique in that it sets the same water rates for companies as it does for residential customers. Cities often charge industrial customers less if they want to attract certain businesses.

“The cost of water will increase for TSMC,” Sorensen says. “Everyone pays the same rate for water in the city of Phoenix, whether you’re a mom-and-pop store, a family of eight, or TSMC.”

TSMC and Intel declined interviews with The Verge for this story. Both have made public commitments, however, to minimize the amount of fresh water they consume.

“A stable supply of water is critical to chip production,” TSMC deputy spokesperson Nina Kao said in an emailed statement. “One of the reasons the city of Phoenix was selected for our US expansion is because of their long-term water plan, which includes varied water supply sources, as well as steps taken in preparation for reduced water supplies over the course of decades.”

Apprehensions are still mounting over the impact that AI and the tech industry as a whole have on the region. AI has spawned a new generation of semiconductor factories, chip packaging plants, and data centers across Arizona.

“It’s almost happening at a level that’s difficult to wrap your head around,” says Jennifer Martin-McLeod, a program manager for the Grand Canyon chapter of Sierra Club. “To try to say ‘Everybody take a breath and think through what we’re doing’ is difficult when you have that steamroller of money coming at your state to try to make it all happen overnight.”

She has broader concerns about the health of the Colorado River and wildlife that depends on it. Over the long term, Sorensen points out that a shortage of water from the Colorado River will result in the depletion of groundwater in Central Arizona, as most cities cope by increasing how much water they draw from local aquifers. “It’s something they can sustain, but it is only sustained at a cost to future generations,” she adds.

The impact of water cuts next year will be felt most by typical residents, Martin-McLeod says. “For me, that’s going to mean serious lifestyle changes. … But to an enormous chip manufacturer, that’s maybe just part of the cost of doing business, you know?”