Caterpillar's Power Generation Growth Drives Stock Performance
Caterpillar (CAT) has surged nearly 96% over the past year, outperforming both the S&P 500 and peers like Deere and Cummins. This growth is attributed to strong demand for Caterpillar’s power generation equipment used in data centers. In Q2 2026, sales from its Power & Energy segment grew by 33%, with a notable 72% increase in sales of large gensets and turbines. The company has restarted production on gas engine platforms and converted facilities to meet rising demand, contributing to an expanded backlog reaching $72 billion—up nearly 92% year-over-year. Despite strong revenue growth (18.4% over the past twelve months), Caterpillar’s operating margin remains below its three-year average at 17.5%. Management attributes this to increased costs from capacity expansion and tariff-related expenses, which are expected to total around $2.2 billion in 2026. The company has raised its full-year sales outlook but faces pressure on profitability as it invests heavily in depreciation and plant spending. Currently trading at a discount of about 23% below its 52-week high, the stock offers an opportunity for investors to bet on continued growth from both construction and power segments. However, margin recovery remains key to unlocking further upside.
Topics: capacity_expansion data_center_power machinery_sales profitability