Caterpillar Posts Record Quarter as Power Sales Surge 30%
Q4 revenue hits $19.1B on AI data center demand. Power generation crosses $10B annually as tariff headwinds mount.
Caterpillar is trading like an AI infrastructure play—and the earnings back it up.
The industrial giant reported Q4 sales of $19.1 billion Thursday, an 18% year-over-year increase and an all-time quarterly record. Power generation revenue exceeded $10 billion for the full year, up more than 30% as data center operators scramble to secure electricity for AI workloads.
Shares rose 3.4% despite a $1.7 billion tariff headwind that pressured margins. Investors are looking past near-term cost pressures to the secular demand story.
The AI Connection
Caterpillar isn't building GPUs, but it's selling the power systems that run them.
The company's power generation segment—diesel generators, gas turbines, solar and energy storage solutions—has emerged as a direct beneficiary of the data center buildout. Every new AI facility needs backup power. Many need primary generation capacity.
Management highlighted the trend during Thursday's call. Data center customers are signing multi-year contracts at premium pricing. The backlog has grown sharply, though Caterpillar doesn't break out AI-specific figures.
This mirrors the infrastructure story playing out across the tech supply chain. ASML reported record orders from chip equipment demand. Seagate surged on AI storage needs. Caterpillar represents the picks-and-shovels play at the physical layer.
The Numbers
Q4 adjusted EPS of $5.16 beat the $4.67 consensus handily. Full-year sales hit $67.6 billion—the highest in company history. Adjusted profit per share of $19.06 for 2025 came in despite significant tariff costs.
Segment breakdown:
- Power Generation: Over $10B for 2025, +30% YoY
- Construction Industries: Flat to slightly up, mixed regional demand
- Resource Industries: Mining equipment demand steady
Operating margins compressed slightly on tariff costs but remained within the 17% target range. Caterpillar has pricing power that most industrials lack.
Tariff Headwinds
The elephant in the room: $1.7 billion in net tariff costs during 2025, with management warning the burden will intensify in 2026.
Caterpillar manufactures globally but sells heavily into the U.S. market. Supply chains that span China, Mexico, and Europe all face tariff exposure under the current trade policy regime.
The company has passed through costs via pricing where possible and absorbed the rest. Margin stability suggests the strategy is working, though further tariff escalation could force difficult choices between price hikes and margin compression.
2026 Outlook
Management guided for full-year sales and revenue growth at the top of its 5% to 7% long-term CAGR target. That implies roughly $71 billion in revenue—another record.
The outlook assumes continued strength in power generation, stable construction markets in North America, and mining demand supported by commodity prices.
Risks skew to the downside from tariffs and potential economic slowdown. But backlog strength provides visibility that most cyclical industrials lack. Caterpillar has orders that extend well into 2027.
Valuation Check
At roughly 16x forward earnings, Caterpillar trades at a modest premium to historical averages. The AI power angle justifies some multiple expansion, though this remains a cyclical business at its core.
The dividend yield near 1.6% provides modest income. More compelling: $5.2 billion in buybacks during 2025, with similar levels expected in 2026. Cash generation supports aggressive capital returns.
For investors seeking AI exposure beyond the hyperscalers and chip makers, Caterpillar offers a differentiated angle. The yellow machines aren't as sexy as black box GPUs, but they're equally necessary for the infrastructure buildout.