Is Alberta’s data centre industry in a bubble that’s about to pop?
Alberta’s ambitions to build artificial intelligence data centres are attracting attention and investment from across North America — with potentially hundreds of proposed projects waiting for a green light and billions of dollars up for grabs.
But some critics and even industry insiders warn there is a high risk many of these proposals will fail, potentially spooking other investors and maybe even leaving behind partially built warehouses.
“There are a large number of speculative developments going on,” Graeme Harrison, a Calgary-based investor in AI infrastructure, said in an interview. “Most of them have no access to customers,” he said.
Harrison worries a bubble is forming around the data centre industry in Alberta — and that it could pop. But others reject
this argument, saying that while there are speculative developers seeking investment, the market will weed them out.
Harrison, co-founder of the venture capital firm Augur Capital Management Inc., said startups often pitch his firm on data centre projects because it has an office in San Francisco, the heart of Silicon Valley.
Within the last year, Augur received more than 100 requests for investment money to build data centres in Alberta, giving Harrison a front-row seat to the AI infrastructure gold rush hitting the province.
Right now, 36 proposed data centre projects are waiting for approval to connect to Alberta’s electricity grid, but Harrison said that is likely just the tip of the iceberg. He said his company’s internal
modelling suggests there could be
a few hundred projects in various stages of development across the province.
With so many projects and a relatively small number of viable customers, Harrison worries investors and related businesses could be exposed to financial losses.
“The average rich guy in Alberta developing a project has about a snowball’s chance in hell of being credible and (building) a project here, because he doesn’t know anything about AI infrastructure,” he said.
According to a recent report by the International Energy Agency, investors are expected to have spent
US
$580 billion on data centre development around the world in 2025, a sign of the international investment zeitgeist. Alberta hopes to snag $100 billion in investment over the next five years with its AI data centre
strategy
to get in on the global action.
Edmonton-based Capital Power Corp. has set its sights on partnering with a data centre in the future but has withheld any formal proposals until it can land a big one. Still, there was plenty of discussion about the idea during the company’s latest earnings call in October, when the term data centres came up 18 times.
Chief executive Avik Dey said for large companies like his, there’s not much concern for a bubble because Capital Power is in it for the long haul.
“The bubble will apply to the fast money,” Dey said in an interview. ”It’s not going to be applied to those that are actually stewards of the market and the electricity systems that we’re in. We are going to have the ultimate accountability to deliver that power reliably, efficiently and economically.”
The group that oversees Alberta’s electrical grid capped data centre connections at 1,200 megawatts for its first phase of connections in June after a surge in requests.
Dey said Capital Power’s project would have exceeded the limit, so it’s holding off for now. The company is already on the verge of building a centre in Michigan, giving Capital Power the tools to build in Alberta.
“We weren’t able to capture the full 1,000 megawatts that we would require to go build a hyper data centre with a partner on our (Genesee power plant west of Edmonton),” Dey said. “We felt it was better to keep that capacity. And for all of those parties that are successful in getting data centre allocations, we’re best served to sell them power.”
Nathan Ip, the NDP Opposition critic for technology and innovation, said he worries that a bubble may be forming, arguing the number of projects proposed points to “serious risks.”
Ip estimated that maybe 10 to 15 of the projects are financially viable, and they have to compete for the business of a limited number of customers.
In industry terms, the big customers that data centre developers are trying to land are called hyperscalers, which offer computing services at a hyperscale. These are tech giants, including Amazon Web Services, Microsoft Azure and Google Cloud Service.
These companies and others like them need to build data centres for their cloud services, which host websites, images and other internet data. But they also need separate AI data centres that have the computing capacity to facilitate machine learning, which is the backbone of an AI system. The two types of facilities are fundamentally different, but the AI warehouses have captured the most attention and investment lately, given the global fascination with chatbots and large language models.
With an abundance of projects and such few hyperscale customers, Ip said many projects could be doomed.
“Not all of them are at the point of construction of course,” Ip said. “But it could mean that we’re in a situation where either lots of people are going to lose their money, or we might even have a situation where there are stranded assets (like) half-built data centres.”
Alberta Innovation and Technology Minister Nate Glubish said it takes big upfront investments to build AI infrastructure, which he believes will prevent unserious investors from getting very far down the path to building one.
Glubish said that without a hyperscaler customer, a developer would have a tough time securing financing.
He said these tech giants are looking to build large data centres that could “easily” cost billions of dollars.
“Nobody’s going to spend that kind of money without having a customer locked up, because they won’t be able to get financing,” he said.
Josh Malate, co-founder of the Calgary startup Ultimarii Ltd., helps companies with regulatory, permitting and grid approvals for AI infrastructure in Alberta. His company sits at the intersection of the data centre gold rush, and he similarly chafed against the idea of a bubble.
“I think bubble may be too extreme of a word, but there is a sorting phase that’s occurring here,” Malate said. “We’re seeing the market and industry separate real infrastructure developers from — let’s call them — speculative storytellers,” he said.
Harrison said there’s still room for people to lose money, which is where he believes the bubble begins.
In his telling, speculative proponents are touting data centres as a big opportunity as they seek money from lenders. The proponents then try to leverage the investment to do the early, preparatory work to get a project off the ground, which costs the lenders money.
At the same time, other businesses enter the space looking to supply the developers with equipment, material and services to fulfill the expected demand.
Harrison said he believes the bubble will burst when developers fail to secure customers, which means they wouldn’t be able to pay their early investors.
If projects start to fail, he said, other investors could get spooked.
“It’s going to change people’s moods about this type of investment as a whole,” he said.
The next group to feel the bubble bursting, Harrison said, would be the suppliers.
“As the projects die, their ability to sustain these suppliers will also go away, and the suppliers will now no longer have the customer base they thought they had,” Harrison said.
If this scenario plays out, a whole chain of businesses set up to serve the supposed data centre demand is hit with dashed or diminished revenue, creating financial wreckage for business owners and their investors.
Over the past 30 years, economic bubbles in various sectors have led to billions of dollars of losses.
While it’s not a perfect comparison to the scenario Harrison describes, the hype surrounding cannabis legalization in Canada has some parallels.
In the lead up to legalization, dozens of new companies emerged. They raised buckets of money from investors so they could build large-scale cannabis greenhouses, assuming they would have enough customers.
But after sales became legal and stores opened across the country, investors realized the size of the actual market was much smaller than they had thought. Production plants started to close, some workers lost their jobs, and the industry consolidated.
In the case of data centres, Harrison and Ip worry there are not enough customers. Harrison said Alberta should be trying to attract more big tech companies that are looking for data centres.
To that end, the Alberta legislature is considering two bills, one that would encourage developers to create their own power, allowing them to build faster. The other would impose fees on data centres that don’t supply their own electricity past a certain limit.
Harrison questioned the wisdom of imposing fees, arguing the provincial and federal governments ought to be thinking bigger if they want to land large hyperscalers.
“Did we put a tax on oilsands bitumen when it was produced? No, we said there’s a royalty regime in place,” he said. “We understand that nobody’s going to build oilsands projects with that royalty regime applying incrementally to the first barrel. You know what we’ll do? Royalty holiday until you’re profitable.”
Glubish said that the Alberta government’s approach is to move quickly but responsibly while trying to attract new data centres, which includes a concierge service for potential projects.
“The global opportunity of data centre infrastructure investment is so large we don’t have to be first,” he said. “We’re not first. We were never going to be first.”
Glubish said the province doesn’t need every project to proceed, nor does it need to rush into deals for these projects. He suggested jurisdictions in the U.S. that rushed in have perhaps come to regret it.
“We don’t need every project to move forward. We just need a few to move forward. And that’s a big win for Alberta.”
Related
Search Articles
Recent Posts
Stay Updated
Get the latest articles delivered to your inbox.