Before The Surge, CAT Stock Was Sending A Power-Grid Sized Signal
While the market was focused on its slowing construction business, one of Caterpillar’s divisions was quietly building a record-breaking order book that hinted at the rally to come.
It’s easy to look at a stock chart after a 132% run and feel like you missed the party. Caterpillar (CAT)’s surge over the past year was the kind of move that turns heads and mints money. But looking back, was the invitation simply lost in the mail, or was it written in a language most investors weren’t reading?
If you were just scanning the headlines before the run, you’d be forgiven for shrugging. As of its fiscal Q1 2025 report, Caterpillar’s overall revenue was actually down 5.6% over the prior year, a continued deceleration from its recent trend. On the surface, this looked more like a company gearing down than one about to take off. The real story, however, was buried a level deeper.
Image by Peter Dargatz from Pixabay
Where was the real action?
The tell was hiding in the company’s Energy & Transportation segment. For quarters, management had been dropping hints. As early as the second quarter of 2024, they noted that this specific division was the primary driver of an increase in the company’s total order backlog. By the third quarter of 2024, they were being more explicit, stating that the strength was being “driven by data center growth related to cloud computing and generative AI.” While the iconic yellow bulldozers were in a soft patch, the engines powering the new tech economy were in high demand. For more on the forces behind the company’s performance, it’s worth exploring what engine was truly driving Caterpillar’s run.
How big did the orders get?
The slow build culminated in a notable disclosure in the company’s fiscal Q1 2025 earnings call, the last one before the stock began its ascent. Management reported a $5 billion jump in the backlog in a single quarter, calling it an “all-time record for organic backlog growth.” The driver was, once again, Energy & Transportation. In that same quarter, sales to users for power generation equipment grew by 58%, which the company linked directly to “demand for reciprocating engines for data center applications.” The signal was as clear as a neon sign.
And what was the options market doing?
Almost nothing. In the weeks leading up to the surge, options traders were pricing in low levels of calm. Implied volatility on the stock had drifted down to the 3rd percentile of its one-year range by early July 2025. The market, it seems, was focused on the slowing construction cycle and had priced the stock for a quiet summer, just as the fundamental story was reaching a boiling point.
It was the sound of a cyclical industrial giant quietly plugging into a secular tech boom.
Can You See A Run Like This Coming?
Some of it, yes. The single most visible pre-surge signal is a company guiding its own forecasts higher, and you do not have to hunt for those one call at a time. Our Guidance Momentum rankings list the names raising guidance with the price already moving with them. One signal is never the whole story, though. And if it is exposure to industrials as a whole you want, rather than hunting the next single name to surge, an industrials ETF like XLI covers that single sector. Going broader than any one sector, to a quality-first mix across the whole market, is the natural next step. The Trefis High Quality (HQ) Portfolio weighs the full range of quality signals across thousands of names, owns the 30 strongest, sizes and rebalances them with discipline, and has outpaced a benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.