The buildout is not short of money. This week proved that again: Alphabet raised its 2026 capital budget to between $195 billion and $205 billion, up from $180 to $190 billion, after Google Cloud revenue grew 82 percent year over year to a record $24.8 billion [DataCenterDynamics, 2026-07-22]. Add the rest of the hyperscalers and 2026 sector capex now runs near $750 billion [industry estimates, 2026]. The scarce input is no longer capital. It is the copper, the electrical steel, and the high-voltage transformers that turn a signed lease into delivered megawatts.

What’s happening

Brazil angle

Brazil is on both ends of this squeeze, which is what the FT and Bloomberg miss. On the supply side, Vale produced 382.3 thousand tonnes of finished copper in 2025, with Salobo at 218.7 kt and Sossego at 74.4 kt, and it has stated a plan to double copper output by 2035 on the back of the Bacaba satellite project at Sossego [Vale, 2026-01; PR Newswire, 2026]. Copper concentrate and cathode are exactly the inputs the US left tariff-free (see US angle), so Brazilian copper can feed the American buildout without the 50 percent penalty that hits finished copper goods.

On the equipment side, Brazil is quietly one of the few places outside China that still builds transformers at scale. WEG, the Santa Catarina electrical group, runs 10 manufacturing sites in the United States with more than 2,250 employees, including three transmission-and-distribution plants in Washington state, and it is midway through a R$1.2 billion capacity expansion across Brazil, Mexico, and Colombia [WEG, 2026-05]. Brazilian exports of transformers, static converters, and inductors to the US already reached $660.7 million in 2025 [Trading Economics, 2026]. The transformer shortage is, for WEG, a demand tailwind most desks are not pricing.

US angle

Washington has built a policy structure that pulls in raw copper and taxes finished copper. The Section 232 proclamation of July 30, 2025 put a 50 percent tariff on semi-finished copper and copper-intensive derivative products (wire, rod, sheet, cables, connectors, electrical components) effective August 1, 2025, while explicitly exempting ores, concentrates, cathodes, and scrap [White House / White & Case, 2025]. A phased duty on refined copper is scheduled to follow, starting at 15 percent on January 1, 2027 and rising to 30 percent on January 1, 2028, pending a Commerce review that was due by June 30, 2026 [Congress.gov CRS, 2025]. For the buildout this cuts both ways: it protects US smelters but raises the landed cost of the very copper-intensive electrical gear the data centers need now.

China angle

China sits at the choke point of both inputs. It refined 47.0 percent of the world’s copper in 2025 and ended the year with 16.2 million tonnes of nominal cathode smelting capacity, though its own planners are now signaling tighter control of new smelter approvals [Tianxia Gongchang / Discovery Alert, 2026]. On the steel side, China holds roughly 1.16 million tonnes of grain-oriented electrical steel capacity and its transformer-core steel exports were projected to pass 700,000 tonnes in 2025 [MOOPEC, 2025]. The West can finance transformers. It cannot easily make the electrical steel inside them without going through Chinese supply.

What it means

The AI trade has been read as a chips-and-capital story. This week reframes it as a materials-and-equipment story. When the marginal constraint moves from GPUs to grid gear, value migrates to whoever controls copper units and transformer capacity outside China. That is the thesis the desk’s indexes are built to track: the AI Materials sleeve (TAI-M) carries copper via COMEX, while the AI Power sleeve (TAI-P) has run well ahead this year on the electricity build, up 13.6 percent year to date against 6.4 percent for materials at the last published reading [Tantalum indexes, methodology on /indexes]. A transformer-and-copper crunch is precisely the kind of event that would narrow that gap by bidding up the materials side. Brazil, holding both copper reserves and one of the few non-Chinese transformer makers, is underweighted in that story.

What to watch