Water Infrastructure Meets AI: How One Utility Tech Company Capitalized on Smart Solutions

The Shift From Legacy Systems to Intelligent Management

For over a century, infrastructure operators have relied on mechanical systems to monitor water consumption. Yet these outdated approaches carry significant limitations—aging meters suffer from accuracy decline, resulting in revenue leakage for water utilities. This vulnerability has created an urgent market demand for intelligent alternatives.

Badger Meter (NYSE: BMI) recognized this inflection point and repositioned its core competency around what the industry now calls “smart water” technology. The transformation represents more than a product refresh; it’s a complete reimagining of how water infrastructure operators can harness modern tech capabilities.

Building Competitive Advantages Through AI-Driven Intelligence

The company’s competitive positioning now centers on connected solutions: cellular-enabled monitoring systems paired with software platforms that deliver real-time visibility into water systems. These capabilities unlock multiple value streams simultaneously. Remote meter reading eliminates costly field visits, while leak detection systems reduce non-revenue water losses. Most importantly, the data infrastructure enables utilities to optimize consumption patterns and improve operational efficiency at scale.

The implementation of these AI-adjacent technologies has fundamentally altered Badger’s unit economics. Network setup requires initial capital deployment, but adding subsequent customers incurs minimal marginal costs. This scalability dynamic has compressed working capital intensity—the foundation for margin expansion.

Growth Metrics Tell a Compelling Story

Since 2020, the company’s financial trajectory has accelerated materially. Revenue has expanded beyond the 100% mark, signaling powerful demand tailwinds. More notably, the subscription-based software platform—which generates recurring, predictable cash flows—has delivered 28% average annual growth, representing the highest-margin component of the business.

Operational leverage has materialized rapidly. Operating margins improved from approximately 15% in 2019 to nearly 20% over the trailing twelve months. This 500-basis-point expansion reflects the economics of scaled software delivery. Concurrently, net earnings have nearly tripled from 2019 levels, while free cash generation has reached levels sufficient to fund both organic reinvestment and strategic M&A activity.

Shareholders have participated directly in this value creation story. Dividend per share has doubled since 2022 alone, demonstrating management’s confidence in sustainable cash generation.

Market Valuation: Between Exuberance and Justifiable Optimism

The market’s confidence in this transformation narrative drove exceptional returns. The stock price more than tripled between mid-2022 and late 2024, reaching all-time highs before experiencing a 30% drawdown over the past half-year.

Valuation metrics present a nuanced picture. Prior to the recent correction, forward earnings multiples reached 40x—a level that raised legitimate questions about pricing discipline. Current trading levels, while elevated relative to historical averages, may still reflect the earnings power of smart water penetration dynamics.

The fundamental question investors must grapple with: Does Badger possess sufficient runway in smart water adoption and margin expansion to justify current valuations? The third phase of water infrastructure modernization will likely provide that answer.

The Broader Investment Thesis

Technology innovation’s benefits flow not only to pure-play tech companies but to industrial operators capable of embedding AI-powered solutions into their operations. Badger Meter exemplifies this dynamic—a traditional infrastructure business leveraging advanced automation, data analytics, and connected devices to capture market share and expand profitability.

For investors seeking exposure to AI implementation themes beyond the semiconductor and software sectors, water management infrastructure represents an undercovered opportunity in the broader digital transformation narrative.