While many investors first think of chip companies when it comes to artificial intelligence, Caterpillar has also become one of the big beneficiaries of the AI boom.
• Caterpillar shares have gained more than 160 percent in twelve months
• The development driver is particularly the business with energy and power supply solutions for AI data centers
• Analysts continue to see growth opportunities, but at the same time point to the now high valuation
The construction machinery and energy technology group Caterpillar is benefiting primarily from the massive expansion of data centers and the increasing energy requirements of the digital infrastructure. This makes him one of the big winners of the AI boom.
From construction equipment manufacturer to infrastructure beneficiary of the AI wave
Many investors still primarily associate Caterpillar with yellow construction equipment, mining equipment and infrastructure projects. However, according to Morningstar, the company has changed significantly in recent years. The Power & Energy segment in particular is increasingly becoming a central growth driver for the group.
As a result, the share price rose by more than 160 percent over the past twelve months. The background: Global investments in AI infrastructure are creating an enormous need for data centers – and therefore also for power supply solutions.
Data centers are driving demand
As Morningstar reports, Caterpillar is increasingly seen as part of the AI ecosystem. This is due to the company’s ability to provide power generation facilities for data centers.
It is particularly important that Caterpillar no longer just supplies emergency power generators. The discussion is increasingly developing towards the primary power supply of data centers. This significantly expands the company’s addressable market. In addition to generators, Caterpillar also offers turbine solutions that can be used as standalone power sources for data centers.
The energy requirements of AI are becoming a growth driver
Caterpillar itself also points to the growing importance of the topic of energy. In a company post, Rob Hoenes, senior vice president of Electrification + Energy Solutions, writes: “The world is facing a new energy problem. We need far more energy, and fast.”
According to the company, AI in particular is massively driving demand for reliable power supply. Caterpillar positions itself as a provider of integrated energy solutions that connect generators, turbines, battery storage, grid connections and cooling systems.
Caterpillar describes the speed in providing such systems as a decisive competitive advantage. Hoenes writes: “Our real advantage, however, is quite simple: rapid performance development.”
Analysts see Caterpillar as one of the biggest beneficiaries
Caterpillar is also seen outside the company as a potential winner in AI-driven infrastructure development. As TradingView reports, citing Bernstein analyst Chad Dillars, Caterpillar could be one of the biggest beneficiaries of the data center expansion. Dillars explained: “If you generate electricity on site, Caterpillar stock will benefit the most.” His reasoning: Caterpillar “manufactures both piston engines and smaller turbines that actually supply the local power grid.”
This creates a special positioning in the market for decentralized power supply. In addition, maintenance and service contracts could generate recurring revenue and thus broaden the earnings base.
Morningstar also refers to this aspect. It emphasizes that new systems could generate service revenue for many years. As Morningstar analyst George Maglares puts it, “If you see strong growth in new orders and then forecast for several years beyond the initial sales, it creates a very lucrative and highly visible source of incremental revenue.”
Higher expectations, but also higher valuation
However, the sharp rise in price has consequences for the valuation of the share. George Maglares raised his fair value model for Caterpillar from $620 to $680 per share. The reason for this is the improved prospects in the energy business as well as positive developments in the construction and raw materials markets.
At the same time, the analyst now sees the market’s expectations as very ambitious. At prices of over 900 US dollars, many positive developments have already been priced in. While he acknowledges that the growth needed to achieve this could eventually occur, he believes the stock may be running ahead of fundamentals. Morningstar is generally positive about the operational outlook, but is much more cautious about the current valuation.
TipRanks currently has 10 Buy and 6 Hold rankings for Caterpillar. This results in a moderate buy recommendation. The average 12-month price target of 16 Wall Street analysts is $978.40.
What this means for investors
The sources considered paint a consistent picture: Caterpillar is currently benefiting greatly from the global expansion of AI data centers and the associated need for power supply. Both Morningstar and TradingView see the energy business in particular as a key growth driver. At the same time, Morningstar points out that the enormous price increase within a year has significantly increased the valuation.
For investors, this means that anyone who is already invested can closely monitor the further development of the power and energy business as well as the order situation in the data center sector. Anyone considering investing should, in addition to the long-term opportunities presented by the AI infrastructure boom, also consider that, according to Morningstar, a significant portion of the positive expectations could already be reflected in the share price.
Thomas Zoller, editorial team at finanzen.net
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