Key Takeaways:
Caterpillar Inc. shares have more than doubled over the past 12 months as the industrial giant benefits from surging demand for construction equipment and power systems tied to the artificial intelligence infrastructure build-out.
"Worldwide spending on AI could reach $2.59 trillion by 2026, up 47% year over year, and that spending covers everything from chip factories to data centers," according to a Gartner Research report. "You cannot build massive facilities like these without the earth-moving equipment that Caterpillar makes."
The company's backlog stood at a record $63 billion at the end of the first quarter, representing future revenues and reflecting a 79% increase from the prior year. Caterpillar's power systems business, which supplies generators capable of providing electricity to remote data center locations, has also seen a surge in demand as AI facilities face growing backlash over their electricity consumption and grid connection delays.
The 100% rally has dramatically altered the valuation picture for new investors. Caterpillar now trades at 5.8 times sales, more than double the five-year average of 2.6 times. The price-to-earnings ratio stands at 43x, also more than double the 19x five-year average. Even on a forward basis, the stock trades at 36x earnings versus a 17x historical average.
The dividend yield has compressed to 0.7%, below the 1% yield available from an S&P 500 index fund and historically low for the stock. While the data center build-out thesis has fueled the rally, Wall Street has priced a steep premium into the shares that leaves limited room for error. The broader industrial sector, as tracked by the Industrial Select Sector SPDR ETF, has also benefited from the AI infrastructure theme, though Caterpillar's gains have far outpaced the group.
This article is for informational purposes only and does not constitute investment advice.
