Caterpillar (NYSE: CAT) has been outperforming the S&P 500 by riding AI tailwinds, and a recent correction does little to change that underlying story.
Concerns about a slowdown in AI development grabbed headlines recently, but those fears have largely proven unfounded as the industry pushes forward aggressively.
Meta Platforms CEO Mark Zuckerberg stated that market forces and competition are enough to keep AI models safe, easing regulatory anxiety among investors.
Hyperscalers continue ramping up AI development at a rapid pace, and Caterpillar sits at the center of that buildout because power remains a critical bottleneck.
Caterpillar’s power and energy segment increased by 17% year over year in the second quarter, driven heavily by surging demand from AI data centers across North America.
That demand has pushed the company’s backlog to a striking $72 billion, which has almost doubled year over year and provides meaningful long-term revenue visibility.
The backlog also climbed $9.4 billion sequentially, representing a 15% boost that signals continued momentum in the company’s most strategically important business segment.
Beyond power, AI data centers still need to be physically constructed, and Caterpillar’s construction segment delivered a 35% year-over-year revenue jump to meet that need.
Most of that construction growth originated in North America, which directly correlates with where major tech giants are concentrating their data center investments, though revenue rose in every region globally.
The recent correction has brought Caterpillar’s valuation down to a 1.4 PEG ratio, a notable improvement from the levels above 2 where the stock previously traded.
Lower P/E ratios and improved valuation metrics now make CAT a more attractive entry point for investors who believe the broader AI expansion still has significant runway ahead.
Grand View Research projects a 30.6% compound annual growth rate for the artificial intelligence industry through 2033, a forecast that supports continued investment in power and construction infrastructure.
Six of the major hyperscalers are projected to spend a combined $1.3 trillion in capital expenditures in 2027, a figure that bodes extremely well for Caterpillar’s core business segments.
As tech leaders secure more compute resources and expand their infrastructure commitments, demand for the power and construction services Caterpillar provides is only expected to intensify.
Caterpillar’s dual role in addressing both power generation and physical construction makes it a uniquely positioned beneficiary of AI infrastructure spending for years to come.
The $72 billion backlog functions as a multi-year green flag for investors, offering clear evidence that demand for Caterpillar’s services will remain elevated well into the future.
For long-term investors, the current dip in CAT shares may represent one of the more compelling entry points seen in recent months, given the strength of the company’s fundamentals.
