CanadianAI: The State of Canadian AI, H1 2026
The half the money showed up
Good morning! Welcome to the Canadian AI Newsletter, a weekly rundown for founders, operators and investors.
After a few weeks on vacation, I am back with a special edition recapping the first half of 2026. The regular weekly cadence returns next Tuesday, starting with a catch-up issue covering July.
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I am Raif Barbaros, Partner at Mistral Venture Partners. Views are my own.
For years the Canadian AI story had a familiar shape: world-class research, weak commercialization, and a talent pipeline that ran mostly south. In the first half of 2026, that shape broke. The money showed up, in funds, in unicorn rounds, in federal equity cheques. The concrete got poured, in Merritt, in Kamloops, in a fight over a gas plant in Olds. The argument changed too. Nobody serious is still asking whether Canada can compete in AI. The question that defined this half is who captures the value, and for the first time, Ottawa, the provinces, and a surprising number of founders are answering it out loud. This special issue is the first half of 2026, distilled. Let’s get into it.
📊 The half in numbers
US$890M: the SCIP sovereign compute procurement, opened April 15, closed June 1, 160 proposals in. No winner named yet.
~$2.86B: the genuinely new money in “AI for All,” Canada’s national AI strategy, out of ~$8.5B in named totals. [→ Issue 17]
~$20B: Cohere’s merger with Aleph Alpha, with the HQ staying in Toronto. (Disclosure: Cohere is a Mistral Venture Partners portfolio company.) [→ Issue 11]
~$1.4B: the valuation of Toronto’s Beacon after its US$225M Series C, the half’s marquee AI unicorn. [→ Issue 18]
54%: AI’s share of all venture capital invested in Canada in 2025, on 23.6% of financings, per Osler’s Deal Points Report. Median AI valuations ran ~60% above the rest of the market.
93% and 2%: the share of Canadian organizations using or piloting AI, and the share that can prove measurable ROI. Hold that gap in your head; the whole half lives inside it.
🏗️ Sovereign compute went from MOU to megawatts
The half opened with memoranda and closed with purchase orders. In February, sovereign compute was a call for proposals and a set of federal MOUs with no dollars attached. By June 1, SCIP, the up-to-$890M flagship procurement, had opened, drawn 160 proposals, and closed, with a Queen’s-led consortium (ex-Nvidia supercomputing talent, Simon Fraser and Bell as partners) among the named bidders. That is a procurement cycle measured in weeks, from a government not famous for them.
The private market moved faster still. Telus committed roughly $1B to a BC cluster scaling toward 60,000 GPUs by 2032 (and no, despite persistent rumours, that is not a SCIP award; it never was). Bell put $1.7B behind Canada’s largest AI data centre near Regina. And in the half’s most concrete answer to “where does Canadian AI actually run,” Bell AI Fabric, Cohere, Hypertec and BUZZ HPC signed a US$220M deal to run Cohere’s models on 2,304 NVIDIA Grace Blackwells at a 6.5 MW facility in Merritt, BC. Canadian models, Canadian-owned compute, Canadian power, Canadian jurisdiction.
The constraint has migrated accordingly. It is no longer policy will; it is electrons. Alberta spent the half running the two futures side by side: a coherent provincial strategy (the U of A compute vision, a Health Innovation Lab) next to a regulator that rejected the 1.4 GW power plant meant to feed Canada’s largest proposed AI data centre at Olds. Manitoba rejected a hyperscale build outright. Kevin O’Leary’s Wonder Valley ended the half-stalled. The pattern is unmistakable: capital is ready, grids and communities are the gate.
🚀 Cohere’s breakout half
Cohere entered the half with a leaked memo and exited it as the organizing fact of Canadian AI. In February, CNBC reported roughly US$240M in annual recurring revenue, past its own target. In April came the defining move: a merger with Germany’s Aleph Alpha at a roughly US$20B valuation, anchored by a US$600M Schwarz Group-led Series E, with the headquarters staying in Toronto. For scale, this is a company that raised at US$6.8B last August. The keep-it-Canadian debate got its proof case in a single term sheet.
Around that anchor, the half was a study in flag-planting. An open-source cadence that ran nearly monthly: Tiny Aya in 70+ languages, Command A+ under Apache 2.0 pitched squarely against China-anchored open models, the co/plot data-viz tool, and North Mini Code, its first agentic coding model. The Reliant AI acquisition took North into pharma. MOUs with Spain’s Indra and Multiverse Computing landed during a royal state visit, and a first provincial MOU with Québec followed in June. Ottawa’s EY Centre became the Cohere Centre weeks before hosting CANSEC, where the Calian partnership carried North into controlled defence environments. A London office tripled the UK footprint, timing that looked prescient within days, when US export controls on a competitor sent allied buyers looking for alternatives (more on that below). The open question H1 hands to H2 is the one everyone asks me at events: when does this company go public?
🏛️ Ottawa wrote the rules and the cheques
The saga that ran through the spring, with the national strategy “coming very soon” for three straight issues and a draft leaking to CBC, finally resolved on June 4 when Prime Minister Carney and AI Minister Evan Solomon launched “AI for All” at Toronto General. Strip out the re-announcements and top-ups (~$8.5B in named totals) and the genuinely new money is roughly $2.86B: a $500M Canadian Tech Growth Fund that takes equity rather than writing grants, $200M for AI Missions starting with health, $50M for CAISI, and $130M to commercialize the national institutes. The stated ambition is to move business AI adoption from 12% to 60% by 2034. My take from launch week still holds: adoption is not value capture, and the strategy is still light on hard industrial policy. But a federal government taking equity positions in its own AI sector is a genuine posture change, and by July, Solomon was floating Ottawa as a lead investor in AI rounds.
The regulatory engine turned over in the same weeks. The privacy commissioners ruled that OpenAI violated PIPEDA, establishing that retroactive consent is not consent. [→ Issue 13] Then two bills landed in June: C-34, which puts safety duties directly on chatbot operators, and C-36, which grants Canadians the right to force deletion of AI deepfakes. [→ Issue 18] Notably absent: any revival of an AIDA-style horizontal AI law. Ottawa is regulating AI through the harms, not the technology.
And the implementation money started moving before the half was out: $100M into the VITAL health-data platform on June 23, connecting 160 hospitals across three provinces as the first big AI for All cheque.
💰 The capital came in
Follow the sequence. Budget 2025 put $1.75B behind Canadian venture, four times the previous VCCI allocation. [→ Issue 7] BDC opened a $500M LIFT window for SME AI adoption. [→ Issue 11] Mila and Inovia launched the US$100M Venture Scientist Fund in January to turn institute research into companies. May brought three funds in one week, then five AI-mandate funds in fourteen days, Sagard’s $150M USD AI Fund among them. Inovia closed a $365M third growth fund in June. Then the marks arrived: Beacon’s US$225M Series C minted a ~$1.4B unicorn built explicitly as an AI rollup.
The empirical anchor is Osler’s data: AI took 23.6% of financings and 54% of all capital invested in 2025, with a ~60% valuation premium and rounds ~50% larger. Fund formation and late-stage marks inflected in the same half. That combination is what makes this a capital story rather than a grants story, and it is why the “Canada can’t fund its own AI companies” line got noticeably quieter by June.
🛡️ The defence-AI map went national
What started the half as an Ottawa story ended it as a national map: Dominion Dynamics in Ottawa, PacifiCan money on Vancouver Island, Lastwall in Fredericton, Kraken’s $615M Covelya acquisition in St. John’s, Denvr in Calgary, and a corridor of autonomy work through Kamloops and North Bay. CANSEC in late May was the set piece. Carney became the first sitting PM to keynote the show, pledged $180B in defence procurement over ten years, and named “unimpeded access to artificial intelligence” a strategic capability alongside space and quantum. The venue itself made the point: the show ran at the freshly renamed Cohere Centre, and the launches skewed hard toward sovereignty: Volatus’s V-Cortex autonomy stack, Convergence’s MIL-V built by 13 firms on 100% Canadian IP, Calian’s ATHORA layer wired for Cohere’s North.
The counterpoint arrived the same week, via documents tabled in Parliament: a $3.7M DND contract with Palantir, defended by the minister as legitimate procurement. A show themed on keeping AI Canadian, and a US data giant quietly inside the tent. Both things are the real state of play.
🏦 The banks raced, the economy lagged
Four of the Big Five now carry $1B-class AI commitments: RBC (targeting up to $1B in value by 2027), TD ($1B by 2028), BMO, and Scotiabank with Scotia Intelligence across 71,000 employees. CIBC ended the half as the lone holdout. Set that institutional sprint against the economy-wide numbers and the half’s most important tension appears: KPMG found 93% of Canadian organizations using or piloting AI, up from 61% a year earlier, while only 2% could prove measurable ROI. MNP’s version: 91% satisfied, 4% transformational. StatCan’s sober floor: 12.2% business adoption in 2025. Canada also ranked 42nd of 47 countries in AI trust.
The gap between what institutions are spending and what the economy can measure is the single most important unresolved question of the half. It is also, bluntly, where the next wave of enterprise AI value gets created.
🍁 The idea that organized the half: keep it Canadian
Every thread above braids into one idea, and the half gave it a vocabulary. Solomon’s parliamentary secretary Taleeb Noormohamed said Canadians have watched IP and long-term value migrate elsewhere and that “our job is to make sure that stops.” Waabi’s Raquel Urtasun said the company must remain Canadian. Tobi Lütke’s quieter point at Toronto Tech Week was about making sure there is something durable worth keeping. Cohere retaining its Toronto HQ through a ~$20B merger is the proof case; Giesecke+Devrient planting its global AI hub inside Mila is the productive tension, foreign industrial capital choosing to sit inside the flagship institute rather than hollow it out.
Then June made the whole argument literal. Washington’s export controls disabled Anthropic’s Fable 5 and Mythos 5 models in several allied markets, and Cohere reported a surge of inbound from US allies within days. Nick Frosst’s pre-ban line to BetaKit read like prophecy a week later: if your whole stack comes from one country that can switch you off, that is not a foundation you can build on. Sovereignty spent years as a values argument. In June it became a procurement criterion, on the record, with a case study.
⚖️ The honest ledger
A half this good deserves an honest accounting of what did not go right.
The adoption gap. 93/2. Everyone is experimenting; almost nobody can prove it is working. Until that closes, the productivity promise is a promissory note.
The exits still point south. Ottawa’s Hyperlume sold to Credo for US$92M in cash seven months after its seed, extending the chip lineage of CentML, Tenstorrent and Untether. Hyper went stealth-to-Motorola in under a year. TrojAI of Saint John sold to A10 Networks in June. The talent stays, for now. The cap table leaves. And in the purest form of the pattern, Superhuman acquired GPTZero, built by two Toronto-raised founders to $30M ARR on $13.5M raised, a company that was never Canadian to begin with because it never felt a reason to be.
Sovereignty is partial. The compute is increasingly Canadian-owned and Canadian-powered. The silicon inside it is essentially 100% NVIDIA, and Ottawa said plainly this half that there will be no national semiconductor strategy. Sovereign racks, imported engines.
The bubble question. The honest answer from the half’s best debates: there is a bubble, and there is a generational platform shift, and both are true at once. Position accordingly.
🔭 Early H2 signals
The second half is already moving. Since the last regular issue: Ottawa signed its first big AI for All implementation cheques (Manitoba adoption funding, $13.85M across 63 Québec AI projects). BC retained counsel to pursue OpenAI over Tumbler Ridge. Jim Keller shot down the Qualcomm rumour. Mila and Vector posted record showings at ICML. And the ex-Maluuba team resurfaced in Toronto as Skyfall AI, with a plan to buy a company and run it with AI as CEO. The full month gets its own issue next Tuesday.
Watch these into the fall: the SCIP winner (still unnamed). Whether CIBC finally moves. The Cohere Series E close and the IPO question behind it. The first Canadian Tech Growth Fund cheque, and whether Ottawa really leads a round. C-34 and C-36 through committee, and the promised standalone AI bill. The Synapse Olds decision, round two.
The takeaway
The first half of 2026 settled the question Canada has been asking itself for a decade: the capital shows up. Funds formed, unicorns minted, procurement moved, and a government started buying and owning instead of granting and hoping. The second half asks the harder question, the one sitting inside that 93/2 gap and those southbound cap tables: whether the value built here stays here, and whether anyone can prove it is working. That is not a policy question. That is an operating question, and it belongs to the founders and operators reading this. See you Tuesday.
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— Raif