Caterpillar (NYSE:CAT), best known for its construction and mining machines, has suddenly become a beneficiary of the artificial intelligence boom, Bloomberg News reported Thursday. As AI’s soaring electricity needs ripple through the economy, investors are betting on demand for Caterpillar’s lesser-known turbines, pushing the stock to record highs in September.
The rally underscores how Wall Street’s AI trade has broadened. After chipmakers and cloud firms, then utilities and data-center builders, investors are now eyeing industrial companies poised to profit from the infrastructure required to power AI.
Brian Sponheimer, a portfolio manager at Gamco Investors, said the market has been searching beyond the “Magnificent Seven” for overlooked winners in the digital economy, Bloomberg News reported.
Caterpillar (NYSE:CAT) stock jumped 14% last month, its best showing since 2023, lifting year-to-date gains to 32%, and well ahead of the Nasdaq 100. Momentum picked up after Oracle (ORCL) forecast stronger cloud growth, fueling speculation that Caterpillar’s (CAT) turbines will help meet data centers’ massive energy demand.
Kristen Owen, an analyst at Oppenheimer, noted that data-center exposure is gaining recognition just as lower interest rates could also revive residential and commercial construction. Caterpillar (CAT) also benefits from selling mining equipment needed for copper and machinery used in building data centers, she said.
Bank of America recently raised its price target to $517, calling Caterpillar’s (CAT) power-generation unit its “highest-margin business” and suggesting it could drive the next earnings cycle. Analyst Michael Feniger wrote that while the company is still seen as a construction and mining giant, power “may be its least understood but most promising growth driver.”
Challenges remain: tariffs could shave up to $1.8 billion off profits this year, while inflation pressures margins. Yet with a record backlog of nearly $40 billion, lower tax liabilities, and a recent Fed rate cut, Caterpillar (CAT) has tailwinds.
Even at 23 times forward earnings, its highest valuation since 2021, Caterpillar (CAT) still trades at a discount to peers like Vertiv (VRT) and GE Vernova (GEV), as well as to AI heavyweights Microsoft (MSFT) and Nvidia (NVDA).