Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 28, 2026 · Beat 6 of last 6 quarters
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Xylem's accelerating data center and AI-related water solutions demand underscores the growing importance of water as a critical input to AI infrastructure. The company's expansion into mobile water treatment and advanced sensing through acquisitions positions it to capture more of the AI ecosystem buildout, from data centers to power generation and semiconductors. This could signal broader opportunities for water technology providers as AI infrastructure scales.
Xylem delivered Q2 revenue up 1% YoY, with organic growth in line with expectations. Adjusted EPS of $1.46 was a record, up 16% YoY, while EBITDA margin expanded 150 bps to 23.3%. Orders were strong, with WSS booking its largest order ever (Dow) and Applied Water data center orders up over 300%. MCS revenue declined 1% due to electric metering delays, while Water Infrastructure grew 3% on transport strength. The company closed the TriOS acquisition and signed an agreement to acquire WaterFleet, expanding its AI-related infrastructure capabilities.
Management narrowed full-year organic revenue growth to 2%-3% (from 2%-4%) due to electric metering delays in MCS, but raised EPS guidance to $5.55-$5.70 (from $5.35-$5.60) on stronger margins and share repurchases. EBITDA margin guidance was raised to 23.1%-23.5% (from 22.9%-23.3%), representing 90-130 bps of expansion. Q3 revenue is expected flat reported / ~3% organic, with EBITDA margin of 23.5%-24% and EPS of $1.42-$1.47. Management expects to exit 2026 with mid-single-digit revenue growth and momentum into 2027, with data center revenue reaching ~2% of total revenue. They also noted no material impact from recent tariff changes and continued monitoring of Middle East conflict and inflationary pressures.
“Data center orders in Q2 were up over 300%.”
on Data center demand
“We view data centers as an early indicator of a larger opportunity across the AI ecosystem.”
on AI ecosystem opportunity
“And importantly, we are not investing ahead of hypothetical demand. We are aligning the portfolio with demand patterns we are already seeing in the market.”
on Capital allocation
Can you flesh out the 9% revenue growth in Applied Water and the outlook for the balance of the year?
Matthew Pine noted the growth was largely data center driven, with strong commercial building services in North America. He expects data center revenue to be up 200% this year and exit at about 2% of total revenue. He also highlighted the WaterFleet acquisition as adding exposure to AI-related infrastructure.
What is driving the electric metering delays and how does that contrast with the water utility side?
Matthew Pine explained that affordability concerns and a cautious capital spending environment ahead of elections have slowed electric meter deployments. He noted Xylem continues to gain share and expects a healthy market long-term driven by AMI 2.0. On the water side, order activity is strong with a funnel up 30% and double-digit water order growth in both Q1 and Q2.
Are you seeing any signs of supply chain tightness or need to increase safety stock for electronic components?
Matthew Pine said they review supply chain monthly and have taken action on rare earth (about a year of supply) and chips/wafers (about 6 months of safety stock). Outside of those areas, the supply chain is balanced.