Badger Meter's AI Supply Chain Squeeze: A New Headwind as AMI Projects Finally Ramp

When Badger Meter reported its second quarter on July 22, the market saw the usual misses—revenue down 7% year-over-year, operating margins compressed by 110 basis points—and the stock has since slid another 15%. But beneath the headline numbers, the call revealed a subtle but telling shift: the same AI infrastructure boom that has lifted the entire tech sector is now exerting a new, two-way pull on this water technology company. It is creating demand in one corner of the portfolio while cranking up costs in another, and that friction is likely to define the next few quarters.

The Data Center Dividend and Drain

The clearest signal came from CFO Dan Weltzien, who flagged a supply chain issue that has become a recurring theme across industrial tech: “the increasing level of electronic component cost and availability pressures, which are a byproduct of the AI and data center build out demand.” — Daniel R. Weltzien, CFO or Investor Relations (inferred from context) · 2026-07-22 That is a new keyword for Badger Meter—data centers have not appeared in the company's top keyword list in prior quarters. The company has had electronics exposure for years, but the current AI-driven surge is qualitatively different, and management admitted the challenges “are not easing。”

Yet the same trend is also a quiet revenue contributor. In the Q&A, Kenneth Bockhorst explained that within flow instrumentation, “clamp on meters…are finding a lot of headway in data centers. Mag meters for cooling towers and monitoring flow.” The 6% year-over-year growth in that product line was largely a function of these orders. The juxtaposition is striking: the same force that raises input costs is also opening up a new application market.

From Awards to Shipments

The other major development is the long-awaited shift from awarded projects to actual revenue. For several quarters, management has talked about a “cohort” of nine AMI projects, and in Q2, shipments finally began. Bockhorst told Jeff Reeve: “PRASA has begun, and a few of the other projects have begun.” — Kenneth C. Bockhorst, Chairman, President, and Chief Executive Officer · 2026-07-22 This contrasts sharply with the prior quarter, when he described an “air pocket” in short-cycle orders: “It just happens to be an air pocket at the same time that there is a project air pocket.” — Kenneth Bockhorst, Chairman, President, and Chief Executive Officer · 2026-04-17 The company is now past that trough, and the sequential 9% jump in base sales confirms the ramp is underway.

But it would be wrong to declare victory. The same cohort that is now ramping is also the source of the company's single largest challenge: AMI projects are notoriously uneven, and PRASA's legal overhang remains. When asked about the risk of slips into 2027, Bockhorst said the cohort “feels like it is pretty solid,” but he also acknowledged that “some of them will be at full run rate end of year. Some of them will not.” That is precisely the type of variability that has made guidance so tricky. And the market has not forgotten that just two quarters ago, the same CEO described these projects with a degree of optimism that did not translate into revenue.

Cost Discipline and the Flattish Path

The margin story was, ironically, a testament to the company's operational discipline. Despite the revenue decline, gross margin held at 40.8%, only 30 basis points below the prior year, and within the upper half of the company's normalized range. Gross margin is the company's biggest financial asset, and it is holding. But the cost pressure is not limited to electronics. CFO Dan Weltzien pointed to rising shipping and procurement costs, and management reaffirmed that the full-year organic target is still “flattish.” The guidance implies a heavy back-half weighting—Q4 will likely be the first quarter of positive yoy growth since 2025.

What matters from the Q2 call is that the company is no longer in the “air pocket.” It is executing on its largest projects, and it is doing so while keeping margins demonstrably stable. The data center story adds a new layer: it is both a tailwind for flow instrumentation and a headwind to electronics procurement. That duality is something investors will need to watch closely.

While we continue to navigate quarter to quarter factors, our confidence in the long term outlook for the business has not wavered.

With the stock down 48% from its 2025 peak, Badger Meter is already priced for a painful transition. If the project ramp holds and the electronic component costs stay manageable, the current valuation may prove too harsh. But if the data center boom exacerbates chip shortages, the margin cushion could erode faster than expected. For now, the Q2 call suggests a company in control—but one that is now acutely aware that the same technology that enables its smart meters is also a new variable in its supply chain.