AI on the Horizon: February 26, 2026

Canada’s latest AI news on the economy, society, and policy. Canada’s Department of National Defence released its first Defence Industrial Strategy (DIS) on dual-use technology, where artificial intelligence continues to be raised as a critical piece of the puzzle. This signals a departure from seeing AI as a speculative investment to questioning how deeply it will be integrated as a national security necessity.

Defence Wins Championships

Results from mid-2025 polling show growing support for defence spending among Canadians. The strategy from Ottawa is to make this a reality, joining national and economic security at the hip. However, we need to keep our “humans-in-the-loop” throughout with safeguards and oversight, given that our southern neighbours are currently grappling with the ethical challenges of maintaining guardrails on AI in military applications.

The DIS is explicit about scaling homegrown champions across AI, quantum, and space technologies. Over the next decade, the federal government frames the opportunity as $180bn in defence procurement plus $290bn in defence-related capital investment, with an estimated $125bn in downstream economic benefit by 2035. This totals over half a trillion dollars in Canadian investment in dual-use technology over the next 10 years.

The message is simple: if Canada is going to spend more to meet evolving NATO requirements, it wants that spending to compound domestically through increased production capacity, intellectual property, and a highly skilled workforce. This spending also flags an immediate $6B over five years to accelerate innovation, stabilize supply chains, expand stockpiles, and help Canadian firms scale.

A Dish Best Served Bold

From an economic resilience lens, the new Build–Partner–Buy framework is of note: build in Canada when feasible, partner with trusted allies when joint development makes sense, and buy only as a last resort. The Defence Investment Agency will be central to streamlining procurement as part of the strategy to increase defence spending to 5 per cent of GDP by 2035. It established a goal to award 70 per cent of contracts to Canadian firms over the next decade (currently sitting at 43 per cent).

The Department of National Defence launched BOREALIS and a call for proposals (up to $50M over two years) under the Defence Innovation Secure Hubs (DISHs) focused on quantum and autonomous systems to push innovation out of labs and into secure test environments, with clear capital alignment. BDC initiated a Defence Platform (up to $4B) combining financing/advisory and investments, explicitly prioritizing sectors including AI, quantum, robotics, aerospace, and dual-use tech.

While Canada continues to make large investments in sovereign AI computing capacity, the current $50mn funding call will be tailored to application-layer AI innovations. More specifically, uncrewed (read autonomous) systems that interface with the physical world. We wrote about AI and robotics last year and bet it would see more attention this year.

At the regional level, early moves are also tangible, with $6.5M invested in two Edmonton manufacturers for AI-adjacent technologies such as quantum cooling systems, sonar, sensors, and naval communications, and the creation of a “defence innovation task force” in Gatineau and Ottawa. This is how DIS turns machines, production lines, jobs, and supply chain expansion into economic growth and resilience.

On The Horizon: Creeping Towards a Barrage of Tech Giants

Canada’s dual-use technology promise only goes so far as developing the IP and talent that continue to fuel domestic commercial spinouts. Lately, our own research shows that our inventive strengths have continued to wane relative to our peers. A recent national investment report shows that early-stage investment has hit a five-year low in Canada, driven mainly by sectors outside of software and services. Increased investment in dual-use technologies that involve physical infrastructure could help soften that blow, and as we noted above, will increasingly become an innovation hotbed.

While Canada still has a horse in the generative AI race with Cohere and a looming IPO, the Department of National Defence might consider how to maintain Canada’s capacity to own and operate a sovereign language model. Alongside that, the brick-and-mortar infrastructure needed to power, cool, and host AI services on home soil becomes a necessary component for both national security and digital independence.

The DIS will be judged by a simple test: do Canadian firms get contracts more often and with enough support to scale to meet the needs of both national security and global demand? If so, it could turn pilots and pipe dreams into unicorns and pots of gold.

To learn more about Canada’s innovation agenda, check out our take on Budget 2025.