Opinion: Don't panic: AESO data centre limits are a red herring
Article content
It did — five years ago. But today, the industry is running the other way and taking its money with it.
Article content
Article content
Article content
In March, Microsoft walked away from roughly two thousand megawatts of data-centre leases in the United States and Europe, telling analysts it now has 'oversupply' and needs a nimbler footprint. Yet, the company will still spend about US$80 billion on capacity this year — just not in hyperscale blocks wired to public grids, and certainly not at the end of long interconnection processes.
Article content
Article content
Where is that money going? Increasingly to private, self-powered sites. Crusoe Energy, for instance, is building the first 200-megawatt phase of an off-grid watt-bit infrastructure campus near Abilene, Texas, to host OpenAI's 'Stargate' facility, fuelled by local natural gas rather than powered by the Texas grid. Such projects now exceed 10 thousand megawatts in global pipelines, and include some suppliers with roots here in Calgary's energy sector and capital market.
Article content
Article content
The logic of it is simple. Cutting-edge AI chips can cost about $20 million per megawatt and age out in two years — roughly 100 times the capital intensity of a gas turbine that lasts decades. However, unlike a gas turbine, which might earn $50 to $75 per megawatt-hour in traditional power markets, a chipset like an NVIDIA H100 can turn that same megawatt-hour into nearly $4,000 — more than 65 times the commodity value of that same energy at Alberta's wholesale price.
Article content
When hardware that expensive and short-lived can earn more than 65 times the value of the energy it burns, operators will do almost anything to keep it running — and the regulatory, political and queuing risks that come with a public grid look less and less tolerable. Proposals that would require data centres to operate for the benefit of power grids make no economic sense to operators who do not share a low-margin, multi-decade view of the present value of energy.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CTV News
8 minutes ago
- CTV News
Caterpillar, Deere count the costs of tariffs as soft demand limits pricing power
Industrial machinery makers are being battered by steeper costs from U.S. President Donald Trump's sweeping tariffs, with sluggish demand and high interest rates leaving little room to pass those expenses onto customers. Caterpillar and Deere, both sector bellwethers, have flagged hefty tariff-related hits this year, most of which they expect to absorb in the coming months as policy shifts keep markets on edge. Global companies that reported between July 16 and Aug. 14 projected a combined financial hit of US$14.2 billion to $15.8 billion for the full year, the Reuters' tariff tracker shows. During their respective earnings calls, Caterpillar said tariffs on imported components and materials would weigh on margins, while Deere warned of higher costs for steel and other inputs critical to its agricultural and construction equipment. The new round of tariffs, part of Trump's expansive push to protect U.S. manufacturing and narrow trade deficits, covers a wide range of industrial goods and raw materials. Machinery makers are already contending with a soft demand environment, as an uncertain economic outlook and elevated borrowing costs prompt customers to delay large capital investments. Deere was not able to raise prices as much as expected in its construction and forestry unit, while price increases in its agriculture business were modest and a bit below forecasts, Edward Jones analyst Faisal Hersi said. That has made it harder to pass on rising expenses, a sharp contrast to the pandemic years when resilient farm incomes and robust infrastructure spending allowed equipment makers to offset supply chain disruptions with price hikes and shield their margins. Quarterly operating profit in Deere's construction & forestry unit roughly halved from last year, while Caterpillar's overall operating profit fell nearly 20 per cent. The tariff hit will be felt most in Deere's Small Ag & Turf and Construction & Forestry units, Jefferies analyst Stephen Volkmann said, with pricing moves only partially offsetting the blow. While the levies are designed to spur domestic production, they have raised concerns among manufacturers that rely on global supply chains. Deere expects just a one per cent price gain this year in its largest division, Production & Precision Agriculture, leaving little to cushion a hit from normal cost inflation. Caterpillar is facing as much as $1.5 billion in tariff-related costs in 2025, including $400 million to $500 million in the third quarter alone, but is keeping its revenue guidance slightly above 2024 levels. 'Currently, inventory destocking is the norm as demand cools, pressuring CAT and DE's ability to push through higher prices onto their customer base,' CFRA Research analyst Jonathan Sakraida said. On the demand side, Caterpillar is finding some relief in its Energy & Transportation unit, which supplies engines, turbines, and locomotives for industries from power generation to rail, with strength there helping offset weakness in its Construction Industries and Resource Industries segments. Deere, with its heavier reliance on the farm equipment market, has faced a sharper slowdown, with sales down nearly 18% so far this year. Caterpillar's power generation business, for instance, is avoiding deep discounts to clear inventory, while Deere is expected to take a more aggressive pricing stance in Brazil as those markets move into a recovery phase, Sakraida said. The world's largest farm equipment maker, which expects $600 million in tariff impacts this year - $100 million north of its prior expectation, has cut its annual profit forecast twice this year as slowing farm equipment sales weigh on results. (Reporting by Shivansh Tiwary and Nathan Gomes in Bengaluru; Editing by Anil D'Silva)
Winnipeg Free Press
38 minutes ago
- Winnipeg Free Press
S&P/TSX composite down as oil moves lower, U.S. stock markets mixed
TORONTO – Canada's main stock index edged lower in late-morning trading as the price of oil and energy stocks moved lower, while U.S. markets were mixed. The S&P/TSX composite index was down 22.05 points at 27,893.94. In New York, the Dow Jones industrial average was up 49.28 points at 44,960.54. The S&P 500 index was down 15.79 points at 6,452.75, while the Nasdaq composite was down 73.54 points at 21,637.13. The Canadian dollar traded for 72.45 cents US compared with 72.43 cents US on Thursday. The October crude oil contract was down 39 cents US at US$62.64 per barrel. The December gold contract was up US$6.10 at US$3,389.30 an ounce. Monday Mornings The latest local business news and a lookahead to the coming week. This report by The Canadian Press was first published Aug. 15, 2025. Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Globe and Mail
40 minutes ago
- Globe and Mail
Poised for Explosive Growth: Is Your Portfolio Ready for This ETF?
Key Points Microsoft, Apple, Nvidia, and Broadcom are excellent businesses, but they all sport pricey valuations. The technology sector has historically backed up its premium valuation with exceptional earnings growth. A tech-focused ETF could be an effective tool for building a position around a handful of leading companies. 10 stocks we like better than Vanguard Information Technology ETF › After a slow start to the year, the tech sector is rocketing higher again -- driven by Nvidia and Microsoft becoming the first companies to surpass $4 trillion in market capitalization. There are many ways to invest in top tech stocks, such as buying them directly or going the route of an exchange-traded fund (ETF). If you scan the holdings of a low-cost growth-focused ETF, chances are it is anchored by tech stocks. Even the S&P 500 has a little over a third of its holdings in the tech sector. Investors looking for outsized exposure to hardware, software, and semiconductor giants may want to go with a low-cost technology sector ETF over a general growth ETF or S&P 500 index fund. Here's why the Vanguard Information Technology ETF (NYSEMKT: VGT) is worth a closer look, but may not be a good fit for your portfolio. Betting big on a handful of companies Roughly half of the ETF is invested in just four companies -- Nvidia, Microsoft, Apple, and Broadcom. Notable companies missing from the ETF include Alphabet and Meta Platforms, which are in the communications sector, and Amazon and Tesla, which are in the consumer discretionary sector. Microsoft is a major cloud computing player at the forefront of both consumer-facing and enterprise-level artificial intelligence (AI). Microsoft's high margins and accelerated growth rate help justify its expensive valuation. Apple has been criticized for falling behind the AI train. But the company isn't sitting idly by and doing nothing. Apple has been rolling out new tools and design upgrades for users. And Apple should arguably take a slow and purposeful approach to AI -- prioritizing user-friendly features rather than raw power. Nvidia's graphics processing units are the gold standard for AI data centers, while Broadcom is helping the major cloud computing companies design their own chips for specific applications. One major advantage for both companies is the quality of the customer base. Nvidia and Broadcom are both capitalizing on big spending from the top hyperscale customers. Over half of Nvidia's revenue in its latest quarter came from just four companies -- which are most likely Microsoft, Amazon, Alphabet, and Meta Platforms. On its second-quarter 2025 earnings call, Broadcom said that its latest Tomahawk 6 architecture flattens the AI cluster by packing more than 100,000 AI accelerators in two tiers instead of three. Combined with its networking portfolio, Broadcom expects three customers (likely the big cloud providers) to each deploy 1 million AI accelerator clusters in 2027, with a big portion of those deployments coming from custom XPUs. Buying the Vanguard Tech ETF instead of choosing one of these four stocks over the others gives investors exposure to cloud infrastructure, application software, gaming, electronics, consumer services, the high-performance and versatility of GPUs for data centers, custom AI chips, and more. And that's just from the top four holdings. There are 319 total holdings in the ETF. The technology sector has consistently justified its high valuation The Vanguard Tech ETF is a great way to get more exposure to Microsoft, Apple, Nvidia, and Broadcom than you'll find in an S&P 500 index fund or a Nasdaq -focused ETF. But there are some risks worth considering before diving in headfirst. The biggest one is valuation. The ETF sports a price-to-earnings ratio of 39.2 compared to 27.6 for the Vanguard S&P 500 ETF. Investors are willing to pay a premium for the tech sector compared to the S&P 500 because it is expected to grow earnings faster than the broader market. However, big tech companies must deliver on earnings expectations to justify the premium valuation. Historically, the tech sector has done a phenomenal job exceeding expectations, as it is by far the best-performing sector over the last decade. ^IXT data by YCharts Another reason to avoid the ETF is if you've reached your maximum desired exposure to some of its largest holdings. For example, if you already have a sizable position in a company like Nvidia and you aren't looking to add more, then buying the tech ETF isn't going to be a good fit. A high-octane ETF for investors who don't mind volatility When approaching any stock or ETF, it's best to align investment opportunities with your financial goals. There are plenty of reasons to believe that the tech sector can continue carrying the major indexes to new heights, but that doesn't automatically mean it's a good buy for all investors. The tech sector is expensive and doesn't offer a sizable amount of passive income. It can also be volatile. These downsides may outweigh the potential benefits of the sector for certain investors. However, if you have a high risk tolerance, a long-term investment time horizon, and don't mind the concentration in just a handful of stocks, then the Vanguard Information Technology ETF could be right up your alley. Should you invest $1,000 in Vanguard Information Technology ETF right now? Before you buy stock in Vanguard Information Technology ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Information Technology ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $649,544!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,113,059!* Now, it's worth noting Stock Advisor's total average return is 1,062% — a market-crushing outperformance compared to 185% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of August 13, 2025 Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
