Canada’s Data-Centre Buildout Has Already Begun: These Stocks Could Be Next

Canada’s AI data-centre buildout is creating investable demand for electricity and electrical equipment, not just chips.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 20, 5:00 pm EDT

| More on: METACPXHPS.A

Key Points

AI data centres need nonstop power and specialized infrastructure, so “picks-and-shovels” suppliers can benefit across the industry.
Capital Power adds a dividend-backed AI angle through its long-term Meta power contract, though the payoff is years away.
Hammond Power is already seeing data-centre-driven sales and backlog growth, but its valuation leaves little room for mistakes.

Canada’s artificial-intelligence (AI) boom is no longer waiting politely in a government strategy document. Concrete is being poured, power has been contracted, and an alarming number of electricians are about to become more important than chatbots.

Bell has two operational data centres in British Columbia, its 300-megawatt (MW) Saskatchewan facility is under development, and Meta has secured electricity for a massive Alberta project. Canada’s data-centre buildout has begun, which means the next opportunity may sit outside the companies buying all those expensive computer chips.

Data center woman holding laptop — Source: Getty Images

More than servers

A data centre is essentially a factory for computing. Servers perform the work, but also demand enormous amounts of uninterrupted electricity and produce enough heat to make cooling a full-time occupation. The facility then needs transformers, backup systems, transmission connections, construction crews, and acres of physical infrastructure.

Natural Resources Canada estimates electricity demand from AI data centres could reach three to five gigawatts by 2030. One gigawatt (GW) can equal the output of a large power plant, so Canada isn’t merely adding another commercial building category. It’s creating a new class of industrial electricity customer, which is attracting investors toward the companies supplying the power and equipment.

CPX

Capital Power (TSX: CPX) owns and operates power-generation facilities across Canada and the United States. Its mix includes natural gas, wind, solar, and other generation assets capable of supplying the dependable electricity that data centres require around the clock.

The opportunity became much more tangible in July. Capital Power stock signed an agreement to provide 250 MW of capacity and energy for Meta’s Sturgeon County data centre in Alberta. The contract runs for more than 10 years, is expected to begin in the second half of 2028, and requires no new capital investment from Capital Power stock.

Second-quarter adjusted funds from operations (AFFO) reached $328 million, up from $235 million a year earlier. At writing, the newly increased annual dividend of $2.8 yields roughly 4.3%. That provides income while investors wait for Meta’s contract and potentially more hyperscale customers to begin contributing.

Of course Capital Power stock isn’t a risk-free AI shortcut. It reported a quarterly net loss, carries debt from recent acquisitions, and remains exposed to electricity prices, outages, and regulation. The Meta load also won’t arrive until 2028. Still, the agreement shows why dependable Canadian utility stocks could become unlikely winners from rising computing demand.

HPS

Hammond Power Solutions (TSX: HPS.A) plays further inside the AI space. The Guelph-based company manufactures transformers and related electrical equipment that convert power into the correct voltage for data centres, factories, renewable projects, and other industrial customers.

Demand has already hit its financial statements. Second-quarter sales jumped 44.7% year over year to a record $325 million, while backlog finished 96.9% above the prior-year level. Data-centre projects have driven much of that growth, suggesting Hammond isn’t merely preparing for the buildout. It’s already shipping into it.

The problem is that investors have noticed. Hammond trades at roughly 28 times annualized first-half adjusted earnings at writing. That’s a demanding valuation for an industrial manufacturer, particularly while it integrates AEG Power Solutions and absorbs acquisition and foreign-exchange costs. A project slowdown or weaker margins could produce a fairly dramatic reset.

Bottom line

Investors don’t need to choose which AI model eventually wins every office argument. They can follow the physical bottlenecks that every model shares. Capital Power stock offers contracted electricity and a dividend, while Hammond provides faster growth through essential electrical equipment, giving buyers two very different ways to approach Canadian growth stocks.

Canada’s data-centre race has moved from announcements to construction, yet much of the required power infrastructure still hasn’t been built. If today’s projects become the first wave rather than the entire boom, the companies keeping those facilities powered may have considerably more work coming.