Backed by abundant renewable energy and strategic subsea connectivity, Brazil is gearing up for a data center boom. Despite the sector’s optimism, Infralogic’s Gabriela Valente investigates the challenges and hurdles to unlock investments in hyperscale facilities  

Brazil’s digital infrastructure market is expected to undergo a data center revolution, with BRL 2trn (USD 358bn) in projected investments over the next decade, according to the federal government. The country aims to position itself as Latin America’s premier hub for hyperscale data centers tailored to artificial intelligence (AI) workloads. But while the promise is immense, so are the challenges — from tax burdens and power grid constraints to regulatory uncertainty and geopolitical considerations.

Brazil’s appeal lies in a unique combination of factors: Almost 90% of Brazil’s electricity comes from renewable sources, according to power regulator ANEEL, which aligns with hyperscalers’ net-zero goals and Brazil’s non-aligned stance makes it attractive to both US and Chinese tech firms. Subsea cables link Brazil to the US and Europe, ensuring low-latency connections.

With over 200 million people and a growing digital economy, Brazil offers robust local demand.

“Brazil is very well positioned for AI because of its renewable energy, competitive prices, and strong connectivity,” said Fernando Jaeger, business development director at Odata.

Patria Investimentos’ digital infrastructure Operating Partner, Rodrigo Abreu, stated that data center developers in the US and Europe are facing power grid limitations, slow permitting, and high energy costs, which prompt hyperscalers to consider Latin America.

“We believe there’s a potential for over USD 50bn in data center investment in Latin America over the next five years with Brazil leading it,” he said.

Brazil currently hosts around 160 data centers, with the majority concentrated in the São Paulo-Rio de Janeiro axis, according to the Brazilian Association of Data Centers. The market is expected to grow at a rate of 25%–30% annually, driven by cloud adoption, enterprise digitalization, and the demand for AI training.

The Energy Research Company projects that data center energy demand will reach 2.5 GW by 2037, just in São Paulo, Rio Grande do Sul, and Ceará regions.

While optimism abounds, two sources said that no major AI hyperscale project has secured contracts or financing yet. This raises concerns about the potential for a speculative bubble.

“There’s a lot of speculative demand in the market,” Jaeger warned. “Regulators need to ensure requests are based on real needs,” he added.

Tax benefits

One of the main challenges of attracting big tech companies and their hyperscale projects to Brazil is the country’s complex tax regime. Import duties on GPUs and AI hardware have a significant share on capex projections.

“Import taxes are one of the main bottlenecks. Solving this is critical to attracting AI workloads,” Jaeger emphasized.

Many hyperscalers are still absorbing recent US investments and adjusting their infrastructure models before expanding abroad, Ascenty’s CRO Marcos Siqueira said, and also citing concerns with taxation.

“We’re not asking for tax breaks for data centers,” he said. “The issue is the tax burden on the client’s equipment, which is often 5–6 times our own investment.”

The average capex per MW is BRL 53.2m in Brazil versus BRL 39m in Chile and BRL 25m in Argentina, according to a Brazilian Agency for Industrial Development study published in 2023.

Taxes account for 23% of total investment costs in Brazil, according to the study.

Brazil’s Finance Minister Fernando Haddad has launched a campaign to attract global tech giants and infrastructure investors. He has led an entourage to visit Silicon Valley in May and unveiled the “National Data Center Policy,” promising tax exemptions on AI hardware imports and digital service exports. The initiative, dubbed Redata, proposes five-year exemptions on IPI, PIS/Cofins taxes, and import taxes for AI-related equipment. Export processing zones also now include data center services, offering additional tax benefits to specific areas.

Despite the government efforts to attract investors, Luiz Henrique Barbosa da Silva, president of the telecom market association, TelComp, warned that short-term or isolated incentives won’t attract sustainable investment.

“We risk building a market that only benefits two or three global players,” he said.

Silva warned that there is a risk of a speculative bubble driven by exaggerated investment announcements and a narrow focus on hyperscalers and urged for a more comprehensive and realistic policy that considers the full ecosystem of digital infrastructure.

“There’s a need for robust, redundant fiber networks, especially in underserved regions,” he mentioned.

Power constraints

Brazil also faces significant power grid integration challenges. Connecting hyperscale data centers to the national grid is complex. These facilities need direct high-voltage connections, bypassing local utilities. The National Electric Energy Agency has approved several projects, like the 200 MW Data Center Aurea 02, in São Paulo. However, Aneel also rejected a major project in Ceará developed by the renewables company Casa dos Ventos due to transmission overload risks, highlighting systemic weaknesses. The National System Operator (ONS) cited risks of voltage collapse and inadequate reactive power support.

Siqueira observed that grid capacity and transmission delays hinder large-scale deployments, even though Brazil generates more energy than it consumes. Despite the limitations, Abreu considers that Brazil has a better integrated power grid than the U.S. market and its power sector has the capacity to invest and meet the data centers demand.

Companies such as Amazon Web Services, which is in talks with local developers to lease facilities, announced a USD 1.8bn expansion in its Brazilian data centers in September 2024. Local companies are warming up for the. Elea Data Centers is expecting to expand its capacity by 250 MW through the construction of two new hyperscale sites and announced a 1.5 GW project in Rio de Janeiro –  Rio AI City – that could eventually reach 3.2 GW. Aligned Data Centers-backed Odata is expecting a 1 GW expansion of its facilities and Patria launched the new data center platform Omnia expecting to start its new venture with a USD 1bn investments.

Both Abreu and Siqueira stressed that Brazil’s geopolitical neutrality is another appealing factor for technology companies in a polarized global tech landscape. However, there are still uncertainties regarding how the country is going to regulate AI and data services in its territory.

“Brazil has all the right ingredients: renewable energy, connectivity, and experience. But we need regulatory clarity to unlock investment,” Siqueira added.

Data sovereignty

The AI Legal Framework (PL 2338/23), approved by the Senate in December, is now under review in the Chamber of Deputies. It mandates transparency in AI training data, bans autonomous weapons, and restricts facial recognition in public spaces.

A third source investing in the sector argued that if the bill mirrors the EU’s regulatory model, it may delay project development.

“It will be a huge missed opportunity if we don’t adjust data regulation,” the source said.

Data sovereignty is another flashpoint. Silva evaluates that foreign cloud dominance could undermine national control over public data.

“We need to foster a full ecosystem: local, regional, and national players not just be a shell for foreign infrastructure,” he said.

The President of the Chamber of Deputies, Hugo Motta, said yesterday that he intends to vote on the legislation regulating AI by the end of 2025. The issue was also debated on the 11th BRICS Parliamentary Forum, in which representatives from member countries’ parliaments advocated for the development of ethical, inclusive AI grounded in principles of responsibility and transparency.