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Nova Scotia Premier Tim Houston speaks during an AI data centre proposal announcement at EverWind Fuels in Point Tupper, N.S., last month.Steve Wadden/The Canadian Press
The federal government’s bid to help Canadian artificial-intelligence companies get domestically controlled processing power could collide with the plans of Silicon Valley giants that may increasingly look north as the U.S. turns against data centres.
Thursday’s budget promised to use Ottawa’s financial tools and guarantees to increase the amount of so-called compute capacity available to Canada’s innovative businesses. In his speech, Finance Minister François-Philippe Champagne listed AI infrastructure alongside mines, ports and dams as projects “that will power our future.”
Across the border, the U.S. midterm elections delivered a blow to the data centre business. On Tuesday, voters in dozens of municipalities approved bans on new compute facilities, while Democrats skeptical of the AI boom swept to power in Congress and in key states such as Texas. The prospect that the facilities could become harder to build in the U.S. and countervailing concerns about the financial returns, triggered a huge selloff in technology stocks on Thursday, with a partial recovery on Friday.
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Some see an opportunity in the U.S. challenges. “Data centres in Canada looking pretty appealing right now,” Lucy Hargreaves, CEO of tech group Build Canada, said in a post on X.
But there is only so much power and so many projects to go around. It’s currently easier, less financially risky and more lucrative for data centre developers in Canada to serve Silicon Valley than to build for Canadian AI companies. That is what the budget measures seek to address.
Meta Platforms Inc. is already building a $13-billion data centre campus in Alberta, while Anthropic will lease space at a facility in Nova Scotia. Amazon.com Inc., Google and Microsoft are also expanding their cloud footprint in Canada. Developers have announced nearly 200 new data centres across the country.
New capacity sponsored by Silicon Valley does not necessarily mean greater access for Canadian AI companies. U.S. tech giants are already using all the available specialized AI chips by placing huge orders and making long-term commitments, said Ali Asaria, CEO of Toronto-based AI startup Transformer Lab. His company has tried everything to get more capacity, he said, citing unsuccessful conversations with more than 50 compute suppliers in recent weeks.
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Data centre developers must borrow to fund projects, and lenders typically set interest rates based on the quality of their clients and contracts, said Simon Ahdoot, CEO of Hypertec Group Inc., a Montreal-based firm that builds data centres and sells the AI servers that fill them. The U.S. tech giants have huge revenues and good credit ratings, so their compute suppliers can secure loans at a lower cost.
Sean Mullin, a former federal policy adviser who helped design Ottawa’s $2-billion AI compute strategy, said providers that primarily work with Canadian AI startups must “aggregate a bunch of these smaller contracts together.” As a result, they could find it much more expensive – or even impossible – to get financing, and their projects may stall out. “You get this Catch-22 that you can’t buy what’s not going to get built,” said Mr. Mullin, a senior fellow at the University of Toronto’s Munk School of Global Affairs and Public Policy.
Thursday’s budget proposes to address the problem using Ottawa’s own fiscal firepower. Federal agencies could issue backstops and offtake agreements to help create 500 megawatts of new compute capacity. Essentially, that means committing to buy a portion of the output of new data centres, or to underwrite their debt. The $15-billion Canada Growth Fund and $45-billion Canada Infrastructure Bank have made similar deals to help launch carbon capture and mining projects, which are also expensive and risky to get off the ground.
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By applying the same approach to data centres, Ottawa can give developers and their lenders the security to move forward “without directly subsidizing or putting taxpayer dollars on the table,” Mr. Mullin said.
Others are not sold on Ottawa’s plan. Craig McLellan, CEO of the Toronto-based cloud services provider ThinkOn, Inc., said there is a risk the federal measures will lead to more capacity than domestic companies and organizations can support. Demand from the Canadian market could be smaller than the 500 megawatts that Ottawa wants to help build. “That is an estimate that is not based on any form of market analysis that goes beyond the speculators,” he said. “It can get there, but I don’t think it’s there yet.”
Financial guarantees for more development also encourage speed over prudence, according to Mr. McLellan, causing companies to focus less on using the most efficient computing equipment possible. “If you don’t promote efficiency at some point in time, then you may end up with an overbuilt infrastructure.”
Mr. Asaria backs the federal plan, which he hopes will give Canadian cloud providers the confidence to build the compute capacity companies like his need. Still, he worries that data centre speculators “could abuse a federal offer that comes with guaranteed financing.”
Mr. Mullin said Ottawa should ensure Canadian companies are not crowded out of new compute capacity. Still, the country could benefit from becoming an AI infrastructure supplier to the U.S. and Europe, he said.