Caterpillar Hits Record as AI Power Demand Surges
Heavy equipment maker rallies 4% to 52-week high after BofA raises target to $825. Data center power generation drives Energy & Transportation segment growth.
Caterpillar might be the most unexpected beneficiary of the AI boom.
The heavy equipment maker hit a new 52-week high Wednesday, closing at $773.01 after a 4.1% rally that extended a remarkable run for a company most investors associate with bulldozers and mining trucks. Year to date, CAT is up over 16%, outpacing the S&P 500 by a wide margin.
The catalyst? Bank of America raised its price target to $825, citing robust demand for power generation equipment driven by AI data center construction. Analyst Michael Feniger wrote that Caterpillar's turbine business is seeing "the strongest customer capex environment in a decade."
The AI Power Play
Here's the connection Wall Street is finally pricing in: AI data centers consume enormous amounts of electricity. Training large language models requires thousands of GPUs running continuously, each drawing significant power. Inference at scale adds even more demand. The result is a power crisis that's forcing hyperscalers to secure generation capacity wherever they can find it.
Enter Caterpillar. The company's Energy & Transportation segment—which includes large reciprocating engines and gas turbines—is perfectly positioned for data center backup and primary power. When utilities can't deliver enough grid capacity, data centers turn to on-site generation. CAT sells those generators.
The numbers are striking. Energy & Transportation sales rose 23% in Q4, driven by what management called "robust demand for power generation engines supporting AI data center build-outs." Order backlog for the segment hit record levels.
Record Results
Caterpillar's recent earnings explained the stock move even before the BofA upgrade.
Full-year 2025 sales and revenue reached a record $67.6 billion. Adjusted profit per share came in at $5.16 for Q4, beating the $4.66 estimate. The order backlog stands at $51 billion—up roughly 70% from a year earlier.
| Metric | Q4 2025 | YoY Change |
|---|---|---|
| Revenue | $19.1B | +18% |
| Adjusted EPS | $5.16 | Beat by $0.50 |
| Order Backlog | $51B | +70% |
That backlog visibility is unusual for a cyclical industrial. Caterpillar typically sees orders fluctuate with commodity prices and construction cycles. The AI-driven power demand represents a multi-year growth driver that's more durable than mining capex.
Beyond Data Centers
The AI narrative is real, but it's not the whole story. Caterpillar is also benefiting from:
- Infrastructure spending: The Inflation Reduction Act and bipartisan infrastructure law continue to drive construction equipment demand in North America.
- Mining recovery: Metal prices have stabilized, and miners are replacing aging fleets.
- Rental fleet expansion: United Rentals and other equipment rental companies are adding capacity.
The combination of cyclical tailwinds and structural AI demand creates a favorable setup. Even if traditional construction softens, the power generation business provides a floor.
Valuation Question
At $773, Caterpillar trades at roughly 15x forward earnings—not cheap for an industrial, but not egregiously expensive given the growth profile. The stock has outperformed the Dow since crossing 50,000 last week, when it led the index higher.
BofA's $825 target implies another 7% upside. More aggressive bulls see $900 as achievable if the power generation story continues to compound.
The bear case is straightforward: cyclicals eventually cycle. When construction spending slows or commodity prices dip, CAT's traditional businesses will face headwinds. The AI demand could cushion the blow but probably won't fully offset a broad industrial downturn.
The Bigger Picture
Caterpillar's rally reflects a broader theme: AI isn't just a software story anymore. The infrastructure required to power and cool AI workloads is creating demand across the industrial economy—from chip equipment makers to power generators to construction companies building data centers.
For traders looking at AI exposure beyond the obvious semiconductor plays, CAT offers something different: a dividend-paying industrial with a century of operating history that happens to be riding the AI power wave.
The stock has momentum. Whether it has another $50-100 of upside depends on whether the power generation story sustains through 2026—and whether the broader market keeps rewarding AI-adjacent trades.