Caterpillar's power and energy division has grown nearly as large as its traditional construction business, driven by data-center demand tied to AI buildouts. The shift has pushed the stock's forward price-to-earnings ratio above 30, making it more expensive than Microsoft, Alphabet or Nvidia, with little room left for the growth story to stumble.
Caterpillar's power and energy unit generated more than $8.2 billion in the second quarter, a 17% jump from a year earlier. That pushed it almost even with the $8.3 billion produced by the company's construction segment. The division's operating profit topped $2 billion, actually exceeding construction's, a sign that demand from data centers building out AI infrastructure carries real pricing power.
Backlog Points to More Growth Ahead
Caterpillar's order backlog stood at $72 billion at the end of June, up 92% from a year earlier, suggesting the shift toward power generation has room to keep running. The broader business backed that up: sales and revenues for the quarter reached $20.5 billion, up 24% from $16.6 billion a year earlier, the first time the company has crossed $20 billion in a single quarter.
Profit per share rose to $7.77. Adjusted operating margin expanded to 21.9% from 17.6%. Alongside $4.4 billion in operating cash flow, the company kept investing in the workforce feeding that growth. On August 17 it launched a manufacturing workforce commitment in Arkansas worth up to $3 million, the fifth allocation under its five-year, $100 million Building the Future Workforce Initiative, following earlier launches in Indiana, Texas and Illinois.
A Multiple That Leaves Little Cushion
Caterpillar shares have climbed nearly 90% over the past year on AI-driven optimism. That run has pushed the forward price-to-earnings ratio above 30, and that makes the stock more expensive than Microsoft, Alphabet or Nvidia, three companies most investors would call the faces of the AI boom rather than a maker of generators and mining trucks. For decades, Caterpillar traded below the S&P 500's long-run average multiple because its construction business tends to grow in the single digits.
Hedge fund ownership of Caterpillar slipped to 84 funds in the most recent quarter from 87 the quarter before, a mild pullback rather than a rush for the exits. Short interest sits at just 1.57% of the float. As of August 28, the forward price-to-earnings ratio stood at 32.05. If AI infrastructure spending slows, or utilities and hyperscalers find other suppliers for backup and primary power, the current multiple leaves little room to absorb disappointment.
Source: Insider Monkey
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