The Engine Driving Caterpillar’s Run Isn’t In A Bulldozer

The old-economy giant quietly became a key power supplier for the data center boom, and the market is just now catching on.

If you had to guess what powered Caterpillar (CAT) stock to a +144% gain, crushing its peers and the S&P 500’s +21.1% return, you’d probably picture a fleet of iconic yellow trucks moving mountains of dirt. You wouldn’t be wrong, but you’d be missing the real story.

The single biggest driver behind this run has little to do with construction sites and everything to do with the cloud, generative AI, and the voracious energy appetite of the world’s data centers.

What exactly is a data center doing with a CAT engine?

It’s buying them by the gigawatt. Caterpillar’s Power and Energy segment has become a critical supplier of the large generator sets and turbines that provide both backup and primary power for data centers. Demand has surged to historic levels. In its most recent quarter, the company’s backlog grew to a record level of $63 billion. Total orders hit an all-time record.

This isn’t a temporary blip. Management noted that customers are signing long-term deals with “some orders well into 2028.” In response, Caterpillar announced it is increasing its large reciprocating engine capacity to nearly 3x its 2024 levels. A company that builds for the long term is making one of its biggest bets ever on powering the digital world.

But is the whole company firing on all cylinders?

Not quite, and that’s where the story gets complicated. While Power and Energy is booming, the Resource Industries segment, which serves mining and heavy construction, saw its first-quarter profit decrease by 39%. The segment’s margin fell a steep 700 basis points, hit hard by tariffs. Those tariffs are a company-wide problem, with an expected price tag of $2.2 billion to $2.4 billion for 2026. While the AI story is compelling, some are looking closer at the numbers behind the growth.

This is the tension in the stock today. The market has re-rated Caterpillar as a key supplier for a secular tech boom, sending its valuation soaring. The company is spending billions to meet that demand, raising its long-term sales growth targets to a compound annual rate between 6% and 9%.

With billions in new spending committed and tariffs still biting, can Caterpillar actually make more money from this boom than it costs to build for it?

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