Market Notes: These three TSX stocks will be winners when data center construction hits Canada.

The data center boom has reached Canada more than most readers would expect and is the subject of the first article in this edition of Market Factors. Part two talks about the possibility of a new paradigm for stock valuations, and the move – one of my favorites so far – starts a list of some of rock’s greatest one hit wonders.

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Strength

There are more jobs in the data center than you might think

It’s a complete coincidence that I have my brother-in-law hired to sell Canadian data center shutdown services. The main takeaway from our discussions is that there are many existing data centers already operating within the country – some in incredible urban areas – and many more are being built or announced.

Scotiabank analyst Maher Yaghi outlined three major drivers behind the rapid flow of data center construction in a research report Monday. AI is an obvious influence but the migration to the cloud – companies that move from managing their computer networks to cloud computing with Amazon Web Services or Microsoft’s Azure platform – also contribute to the growth of the data center. Economic growth, and e-commerce in particular, is a third source of demand.

The scale of data centers is measured by energy consumption. Local media outlets currently require 1.6 gigawatts, the equivalent of a city of one and a half million people. Centers under construction will consume another 0.4 gigawatts, and 4.2 new data centers have been announced in the future.

Ontario and Quebec have been the most popular locations for data centers so far, in large part because of hydroelectric power. Another example is a 4.5-hectare site under development north of Toronto managed by US developer Yondr.

Mr. Yaghi expects that construction will move to Saskatchewan and Alberta as the supply of electricity in the east becomes scarce. BCE recently announced a new 300-megawatt data center to be built in Saskatchewan in partnership with the provincial government.

The analyst noted Alberta’s new plan to attract $100-billion in private investment with the goal of making the province a major hub for AI infrastructure. Natural gas-fired power plants are a hot selling point. By the end of 2025, the Alberta Electric System Operator intends to sell 1.2 gigawatts of power to two planned data centers as part of the project. Brookfield and Canada Pension Plan are part of the ownership group.

More data centers in Alberta mean more profit for TransAlta Corp. (TA-T), according to Scotiabank. Higher energy demand could push the cost of selling to C$80 to C$120 per megawatt and add C$200-million to C$650-million to annual cash flow.

Capital Power Corp. (CPX-T) will be another winner. The company has already found a customer for a data center for 250 megawatts of energy in Alberta. Capital Power is developing a 1.0 to 1.5 gigawatt data center adjacent to its Genesee natural gas power plant.

Pembina Pipeline Corp. (PPL-T) is another potential beneficiary. The company has entered into a partnership with the OPTrust pension plan subsidiary to build a 1,864 gigawatt power station that will be integrated into a large data center.

Market trends

Estimates are high for a long time

Citi US equity analyst Scott Chronert’s weekly report on the markets highlights a higher-than-usual number of unknowns for analysts and investors in the markets today. He noted that hedge funds have been beating the risk and taking it away regularly based on news reports that the effects of AI in the coming years may be large, marginal, and entirely speculative.

Financial theory says that volatility should be accompanied by a higher discount rate due to increased risk. This will take the form of discounted valuations unless the reversal is true – stocks are worth more than their historical averages in almost every standard.

One of two things must be true. Either traditional investment methods are now dead or a bad bear market is ahead. There is a central point that points to a large government deficit in many G10 countries and equally, compared to the past, central bank papers in order to raise stocks in the current situation. However, it is a different way of saying that traditional monetary theory still holds – as long as the money supply is increased as a variable.

I depend on this question. I think overall rates will remain high for a long time, even if not as high as they are now. The economy is different than it was 50 years ago as financial systems are being developed. Telephone and landlines have been replaced by software and servers and optical cables. We cannot take today’s companies as seriously as they did in the 1930s when new orders were written in ledgers.

I don’t believe volatility is behind us, and as always, past performance is no guarantee of future returns. But why should we expect markets to stay the same when the world is changing so fast.

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Obstacles

The Canadian radio project is important

Canadian music journalist Alan Cross has gone on a podcast-y journey that I’ve noticed. To set the record straight with hyphens in the title, Mr. Cross began highlighting The 50 greatest of all time, alt-rock one-hit wonders on his ongoing New Music History radio show.

Songs from the first show included Pump Up the Volume by M/A/R/R/S, Mexican Radio’s Wall of Voodoo, School of Fish with Three Amazing Days, Birds Are Flying (Screaming) by Icicle Works and the Twin Peaks hit, Falling by Julee Cruise.

However, the biggest song on my list is Go! with Sounds in the Tail. I liked this song. It still does. It was on the soundtrack to John Hughes’s less successful film, Career Opportunities, and was never available in a record store. You basically had to rent the movie from Blockbuster to hear the song and pick up the crappy TV microphone if you wanted your own copy. The only song that was a bit hard to find was Hey, Hey, What Can I Do by Led Zeppelin, one of the few Zeppelin songs I can still stand.

Go! it was also the soundtrack to Grosse Pointe Blank. The Violent Femmes, The Clash, Siouxsie and the Banshees, Echo & the Bunnymen, The Cure and A-ha were also in the film. The music always seems to be great in John Cusack’s films – High Fidelity is also a standout – but maybe I feel that way because we were born a week apart and have similar tastes in music as a result.

Important things

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Globe Investor Ratings

Larry MacDonald reports on the monthly movements of short sellers on the TSX

Norman Rothery makes the case for fast portfolios

Tim Shufelt on how stocks, not real estate, have been the biggest wealth generator lately

David Berman forgets about gold as a safe investment. Dr. George Athanassakos agrees

Meera Raman looks at what’s expected in Canada as financial firms bet on forecast markets

Tom Bradley on thin lines in the markets – and how smart investors manage them

A quick beat

Morgan Stanley published a great long-term report about how robotics companies have stopped everything while planning how to incorporate AI into new products, which I think is happening before The Matrix. The report also states that “[roughly] 90 percent of the supply chain of critical components [in the robotics industry] somehow controlled by China” – which I found interesting.

Every time I see “No, really, the software company’s loan is OK!” a report from a major investment company makes me even more nervous. Goldman Sachs had two related stories in their weekly email.

The Canadian credit market, particularly the interest rate structure, is getting more attention than usual. The back is flattened because the two years have been following the world’s highest standards. The local economy has been putting out weak data lately, however, so it’s not very plausible, even if the prices from some are showing expectations of 50 points of inflation. this year.

Read this week’s earnings and economic calendar Here