A global race to dominate the global artificial intelligence (AI) space is on, and countries are battling to outrun one another. Canada is one of the first movers in AI research, but several other countries have surpassed it lately. Sensing its declining rankings, Canada recently announced a $2.4 billion AI spending package to secure the country’s homegrown AI industry. Two AI stocks, including International Business Machines (NYSE:IBM), or IBM, and Nvidia (NASDAQ:NVDA) stock, could be the early beneficiaries.
To understand how each identified AI stock may benefit, its important to take a look at how Canada is channeling its sovereign AI spending budget.
How will Canada spend its $2.4 billion AI investment budget?
The government of Canada may disburse its $2.4 billion AI budget as follows:
- $2 billion will go into building and providing access to computing capabilities and technological infrastructure for AI researchers, start-ups, and scale-ups. Canada will create a new AI Compute Access Fund. The government will develop a new Canadian AI Sovereign Compute Strategy to promote the development of locally owned and located AI infrastructure;
- $200 million is intended to boost AI start-ups, bring new tech to market, and accelerate AI adoption in critical sectors like agriculture, health care, clean technology, and manufacturing;
- $100 million will help small and medium enterprises scale up and increase productivity by building and deploying new AI solutions;
- $50 million will support workers negatively impacted by AI to gain new skills;
- $50 million goes towards creating a new Canadian AI Safety Institute to help the country ethically and safely deploy AI, given potential risks to systems or specific communities;
- $5.1 million goes into enforcing the Artificial Intelligence and Data Act.
Most of the direct beneficiaries from the budget may be small and medium enterprises, research centres, and startups. These beneficiaries are mostly available to early-stage venture capital and private equity investors, and many may be inaccessible to public stock market investors.
That said, a few publicly traded AI stocks could benefit, and Nvidia stock is one of them.
Nvidia stock: Getting more business from Canada
The Government of Canada and Nvidia signed a strategic deal in February 2024 — weeks before the country’s AI budget announcement. The deal, which is aimed at boosting computing power, came as Nvidia’s chief executive joined Canada’s AI luminaries to explore their breakthroughs in healthcare, transportation, and other AI advances.
Nvidia, a leading AI stock, acknowledges Canada as an early partner (customer) since the early days of artificial intelligence, and the latest deal, whose numbers remain private, may include a guaranteed supply of AI accelerators to the country.
Canada’s $2 billion investment in AI computing capabilities and technology infrastructure will most likely involve acquiring new data centre equipment, including the latest AI computing chips, and Nvidia is the leading vendor of AI computing hardware today.
To be fair, Canada’s purchases of AI equipment under the $2 billion budget may not single-handedly move the needle on Nvidia’s stock price. The wildly successful growth stock recently reported a record US$26 billion in quarterly sales.
IBM stock: Picking up strategic investments
One of the key pillars of Canada’s AI growth strategy is strengthening its local semiconductor supply chain. On April 26, 2024, the prime minister’s office announced a $59.9 million investment to support IBM Canada and the MiQro Innovation Collaborative Center (C2MI), one of the country’s microelectronics research and innovation leaders, to create more semiconductors.
IBM expects up to $187 million in total investment in advancing its Canadian subsidiary’s plant’s assembly, testing, and packaging capabilities, and the Government of Canada’s investment helps create a strong domestic production of semiconductors, furthering quantum research within Canadian borders.
Semiconductors remain critical in the global race to scale up and adopt artificial intelligence and quantum computing.
It’s unclear whether the IBM investment is directly related to the $2 billion AI budget. However, the deal could help Canada create a more vibrant semiconductor research and development ecosystem and help retain AI talent within the country.
IBM is a significant AI stock to watch as its Watson AI platform gains traction. Its new AI processors announced in 2022 may eventually creep into an undersupplied market dominated by Nvidia’s hot-selling AI accelerators.
