Caterpillar stock doubles Nvidia returns as AI data centers fuel power generation demand

AI + Halo = $$$

Good morning. First-quarter earnings reports will keep pouring in this week, from Palantir to McDonald's. The results to date have been strong. If that continues, the US job market remains stable, and oil stays under $150 or so (it's around $106 now) it's hard for us to see why the rally in risk assets wouldn't keep right on going. Disagree? Email us: [email protected]. The Data Centre Seven Take a moment to think of the poor investors who, keen to profit from the AI boom, made their play by owning Nvidia. The cutting-edge chipmaker is up a flat-footed 74 per cent in the past 12 months. If you wanted real AI leverage, chips were not the play. The companies to own have, instead, been the ones who get AI data centres built and then keep them running. This means construction services (Comfort Systems, up 328 per cent in a year, or Emcor, 107 per cent), power and cooling infrastructure (Vertiv, 246, or Quanta, 130) and backup generators (Caterpillar, 175, Generac, 122, or Cummins, 117). At the moment, investors want exposure to either AI stocks or AI-resilient Halo (heavy assets, low obsolescence) stocks. This group of industrial firms -- call them the Data Centre Seven -- is the point where the two overlap. The DC7 shares have gone bananas and they are not slowing down: Below, I have rebased the revenue for all of the DC7s at 100 for 2025 and included consensus revenue estimates through 2030, making both their historical growth trajectory and Wall Street growth expectations visible: It is interesting to contrast these growth patterns with what has happened to the companies' valuations. Below I've rebased the forward price/earnings valuations of the stocks at 100 as of one year ago. Comfort systems and Vertiv (the pink and lightest blue lines, respectively) which have both the strongest growth in the past few years and the highest expected growth, have seen their price/earnings valuations nearly double (they trade at 48 and 42 times earnings now): But the most interesting stock in the group may be Caterpillar (the darkest blue line) whose valuation has more than doubled but has the lowest historical and prospective growth. Caterpillar is famous for making big yellow machines on tracks or wheels, used in construction and mining. But it also has a big business selling diesel and gas generators that serve as both backup and primary power sources for AI data centres and other industrial facilities. This business generated about 40 per cent of Cat's $14.2bn in first-quarter revenue, and grew at 22 per cent; taking out the effect of inventory destocking, growth was 32 per cent. The fast-growing sales in energy, and the deepening backlog of energy orders, last week prompted management to increase company sales growth targets to 6-9 per cent compounded between 2024 and 2030. Consensus analyst estimates are a touch below that range as of now, but will presumably catch up before long. But the stock price is already there, and more. Cat's shares trade at 36 times forward earnings; however you slice it, that implies a growth rate much faster than 9 per cent. Yes, the company is probably under-promising a bit in order to over-deliver. Still, one can't help but wonder if the stock has run ahead of what the company can achieve. "What you need to believe is way above what the company's guidance is and way above any growth we have seen," Angel Castillo, who covers the company for Morgan Stanley, told Unhedged. But Castillo last week upgraded the stock from underweight to equal weight. To reach a price target near the current price, Castillo models 12 per cent growth in the energy business through 2030, with growth slowing only gradually over the next 15 years or so. In other words, he models the data centre boom running for a very long time. At the same time, one has to assume that Cat's competitive position in data centres stays strong, despite the fact that competitors, especially for large gas turbine generators, are rushing to add capacity. The equity market is massively intertwined with the data centre boom, and not just in the form of the big tech or chip companies. If the boom should fizzle, the damage will not be contained to one or two segments.

Don't look now, but Caterpillar is becoming an AI darling

Why it matters: The equipment maker is enjoying a sales boom from the surge in development of AI data centers and power plants. Driving the news: Caterpillar on Thursday recorded a 22% increase in revenue, compared with a year earlier, to $17.4 billion. * That crushed S&P Capital IQ estimates of $16.4 billion. * It included a 38% increase in construction industry revenue and a 22% rise in its power and energy segment. Between the lines: Much of Caterpillar's growth in power and energy is being driven by data center demand and the electricity needed to support cloud computing and generative AI, CEO Joe Creed said on an earnings call. * Caterpillar makes the engines and turbines that supply both primary and backup power to those facilities, as well as the electrical infrastructure to run them. Zoom in: Creed said Caterpillar has accumulated a "record" backlog in orders. * The backlog totaled $63 billion, up 79% from a year earlier. * "Customers are committing to longer-term orders with some orders well into 2028," Creed said. Caterpillar is also investing to keep up with demand. * "The data centers are trying to move quickly," Creed said, when asked about the timeline for the company's plan to increase large engine production. "We're going to start right away." The impact: CAT is the second-largest component in the Dow Jones Industrial Average, representing more than 10% of the index, according to Bespoke Investment Group. * The stock closed up 10% Thursday, contributing to a 790-point rise in the Dow. Our thought bubble: The AI economy continues to translate into demand for actual stuff like Nvidia chips and Caterpillar machines. * That's making it increasingly difficult to argue the AI boom is a mirage. What we're watching: The Iran war brings near-term risks for Caterpillar but "could provide green shoots for 2027" if it leads to a surge of new energy projects, Bank of America analyst Michael Feniger wrote in a research note.

Caterpillar Delivers Twice Nvidia's Stock Returns: What's Driving CAT? - Caterpillar (NYSE:CAT), NVIDIA (

Bulldozer Maker Caterpillar Delivers Twice Nvidia's Returns -- What's Behind The Move? The second-best Dow performer, Nvidia Corp. (NASDAQ:NVDA), had returned 80%. A bulldozer maker more than doubled the return of the chip company that defined the AI trade. Then Caterpillar reported first-quarter 2026 results before the open and the stock ripped roughly 9% to a fresh all-time high near $889. The catalyst is no longer hiding. Best-Performing Dow Jones Stocks Over The Past YearThe Q1 Print That Confirmed The Trade Caterpillar reported Q1 2026 sales and revenues of $17.4 billion, up 22% versus $14.2 billion a year earlier and roughly $900 million ahead of the LSEG consensus near $16.5 billion. Adjusted earnings per share came in at $5.54, up 30% year-over-year and almost a full dollar above the $4.62 consensus. The headline number that reset Wall Street's frame was the backlog: $63 billion at quarter-end, up $28 billion or 79% from a year ago, and $11.5 billion higher than just three months earlier. That is not a cyclical machinery print. That is a multi-year visibility number. Q1 2026 -- Caterpillar At A Glance The Catalyst: Caterpillar Became An AI Trade The Power & Energy segment, roughly 40% of Caterpillar's sales, is the engine of the rerating. Inside that segment, power generation revenue surged 41% to $2.82 billion in Q1, almost entirely tied to large reciprocating engines, gas turbines, and turbine-related services going into data center applications. The mechanism is straightforward. Hyperscalers and AI infrastructure operators cannot wait the six-to-eight years it now takes to secure grid interconnect in some U.S. regions. So they are building "behind-the-meter" -- putting their own gas-fired power plants directly on site. Those plants run on Caterpillar engines and Solar Turbines, the brand Caterpillar has owned for decades and that until 2024 most equity investors barely tracked. On Thursday's call, CEO Joe Creed told analysts the company is now planning to expand large reciprocating engine capacity to nearly three times its 2024 level. Investments will be heavy in 2027 and continue through 2029. "Our team delivered a strong start to the year, driven by resilient end markets and disciplined execution in a dynamic operating environment. A record backlog provides a strong foundation for continued positive momentum," Joe Creed said. Why It Now Doubles Nvidia: Structural, Not Just Cyclical Nvidia sells the chips. Caterpillar sells the power that runs the chips. Both are AI plays, but the market spent 2024 and most of 2025 paying for one and ignoring the other. Once gigawatt-scale prime power orders started landing the rerating started. For households, the story rhymes with what they are already feeling at the meter. U.S. residential electricity prices have climbed steadily as utilities scramble to add capacity for AI workloads. Data centers in some service territories are pulling so much load that local rates are rising 10% to 20% in a single year. The infrastructure being built to supply that demand -- the engines, the turbines, the pipelines -- is what is sitting in Caterpillar's $63 billion backlog. The pure cyclical case alone would not justify CAT trading at 36x forward earnings, well above its 15-year historical band of 15x to 18x. The structural case can. Wall Street Has Been Chasing The Stock Bank of America analyst Michael Feniger raised his price objective on Caterpillar to $930 from $825 on April 24, reiterating a Buy rating. Feniger now values the stock at 29 times his 2027 EPS estimate, which he raised to $32 from $30. He argued in his note that the company's oil and gas portfolio could deliver a second leg of upside in 2027 as North American upstream spending recovers 10% to 15% following the Iran conflict, broadening equipment demand beyond the data center power story. Wells Fargo's Jerry Revich lifted his target to $960 from $870 on April 21, the highest active target on the Street, citing fresh Solar Turbines projects and expanding gas compression demand running three times year-over-year. Truist Securities raised its target to $920 from $786 on April 20, also keeping a Buy. Citi sits at $905. Jefferies is at $900. Per Benzinga Analyst Stock Ratings, Caterpillar holds a consensus rating in Moderate Buy territory across 24 covering analysts. The Morgan Stanley line is worth holding next to the others. Angel Castillo's $430 target is the only sub-consensus call on the tape and frames the bear case bluntly: even with a record backlog, paying 36x for a company whose earnings have historically swung 30% peak-to-trough is a stretch. The split is the story -- analysts are not arguing about whether Caterpillar's data center business is real. They are arguing about what multiple a heavy-machinery stock should command for it. Image: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.