Federal plan to boost AI compute capacity may clash with Silicon Valley's Canadian ambitions

OTTAWA · The federal government's budget plan to increase domestic computing power for Canadian artificial intelligence companies could put it in competition with Silicon Valley giants expanding their data centre footprint in Canada. Finance Minister François-Philippe Champagne pledged Thursday to use financial tools and guarantees to boost so-called compute capacity, which he listed alongside mines and ports as key infrastructure. The move comes as U.S. tech firms face growing opposition to new data centres at home, with voters in dozens of American municipalities approving bans on such facilities this week. "Data centres in Canada looking pretty appealing right now," said Lucy Hargreaves, CEO of tech group Build Canada, in a social media post reacting to the U.S. challenges. Major U.S. companies are already building in Canada, with Meta Platforms Inc. constructing a $13-billion data centre campus in Alberta and Anthropic leasing space in Nova Scotia. Amazon.com Inc., Google and Microsoft are also expanding their cloud operations in the country, with developers announcing nearly 200 new data centres nationwide.

However, new capacity built for Silicon Valley does not automatically mean greater access for Canadian AI startups. Ali Asaria, CEO of Toronto-based AI startup Transformer Lab, said U.S. tech giants are already consuming all available specialized AI chips through huge orders and long-term commitments. The budget proposes using federal agencies to issue backstops and offtake agreements to help create 500 megawatts of new compute capacity. This approach, which commits to buying a portion of a new data centre's output or underwriting its debt, mirrors deals made by the Canada Growth Fund and Canada Infrastructure Bank for carbon capture and mining projects. Sean Mullin, a former federal policy adviser who helped design Ottawa's $2-billion AI compute strategy, said this gives developers and lenders the security to proceed "without directly subsidizing or putting taxpayer dollars on the table."

Financing is a key hurdle. Data centre developers must borrow to fund projects, and lenders set interest rates based on client quality, said Simon Ahdoot, CEO of Montreal-based Hypertec Group Inc. U.S. tech giants have strong revenues and credit ratings, allowing their suppliers to secure cheaper loans. Providers working primarily with smaller Canadian AI startups must "aggregate a bunch of these smaller contracts together," Mullin explained. This can make financing much more expensive or impossible, creating a situation where "you can't buy what's not going to get built."

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Some industry figures are skeptical of the federal plan's scale. Craig McLellan, CEO of Toronto-based cloud services provider ThinkOn, Inc., said demand from the Canadian market may be smaller than the 500 megawatts 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." He also warned that financial guarantees could encourage speed over prudence, leading to less efficient computing equipment and potentially "an overbuilt infrastructure."

Asaria supports the federal plan, hoping it will give Canadian cloud providers confidence to build the capacity his company needs. Still, he worries that speculators "could abuse a federal offer that comes with guaranteed financing." Mullin said Ottawa should ensure Canadian companies are not crowded out of new compute capacity, but noted the country could benefit from becoming an AI infrastructure supplier to the U.S. and Europe. The U.S. political shift against data centres, which contributed to a technology stock selloff on Thursday, shows the uncertain environment south of the border.

With files from The Globe and Mail