Caterpillar shares trade at $845.42, up 2.31% on the day, after climbing more than 43% this year even though the stock remains well off its 52-week high. Motley Fool writer James Halley argues the industrial equipment maker could trade above $1,000 a share by 2028, pointing to rising demand for its engines and turbines as AI power sources and a shift toward higher-margin services revenue.
Caterpillar shares trade at $845.42, up 2.31% on the day. The stock has climbed more than 43% this year, though it remains well off the 52-week high of $1,073.46 it reached on June 30. Motley Fool writer James Halley argues the construction and mining equipment maker could trade above $1,000 a share by 2028, citing rising demand for its engines and turbines as power sources for AI infrastructure alongside a shift toward higher-margin services revenue.
AI data centers drive demand for engines and turbines
Hyperscalers building data centers face a power bottleneck, since multiyear interconnect queues limit access to the electrical grid in many areas. Caterpillar's energy and transportation division now supplies primary and backup power for AI facilities through its reciprocating engines and solar turbines, and the company said it is tripling production capacity of large reciprocating engines relative to its 2024 baseline.
That demand showed up in the company's results. In the second quarter, Caterpillar reported record revenue of $20.5 billion, up 24% year over year, while earnings per share rose 68% to $7.77. Operating profit margin grew from 17.3% to 20.9% over the same period.
Services revenue is reshaping the valuation
Caterpillar is working toward $30 billion in annualized high-margin services revenue by 2030, up from $24 billion, as gas turbines and continuous-power generators running around the clock generate up to 40 times as much lifecycle servicing and parts demand as standby diesel units. That shift is smoothing out the cyclicality that has traditionally defined the stock, and the market now prices Caterpillar at about 35 times earnings, well above its average over the past five years.
Stronger cash flow is funding both growth and shareholder returns. The company reported second-quarter cash flow of $6.14 billion, up from $5.72 billion in the prior-year period. It also raised its dividend by 8% this year, the 32nd consecutive year it has boosted the payout.
Infrastructure and mining demand add support
Federal infrastructure spending, energy transition projects, semiconductor foundry construction, and manufacturing reshoring continue to support domestic demand for Caterpillar's earth-moving equipment, according to Halley. Rising demand for copper, lithium, and rare-earth metals is also pushing mining operators to raise capital spending, and Caterpillar's proprietary autonomous haulage fleet technology gives it a competitive moat in securing large mine-site fleet refresh cycles.
Caterpillar's quarterly revenue has grown 54% over the past five years, compared with less than 25% in the five years before that. Halley says it is reasonable for the stock to reach $1,000 a share by 2028, if not sooner.
Source: The Motley Fool
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