Caterpillar has surpassed Nvidia in stock returns. Why is it benefiting from the AI boom?

Investors seeking to benefit from the boom in artificial intelligence are actively buying shares of "old-school" industrial companies producing equipment for power supply to data centers, Bloomberg writes. Among such companies is the manufacturer of heavy machinery Caterpillar: its shares have grown by almost 46% since the beginning of the year. For comparison, the S&P 500 index has added 17%, and shares of AI-chip maker Nvidia - one of the main beneficiaries of the artificial intelligence boom - have risen by 41%.

Caterpillar will release results for the third quarter on October 29. What do analysts think about the company before the report?

- Caterpillar, along with another U.S. diesel engine maker Cummins, could see a "significant" increase in profits over the next three years thanks to the AI boom, UBS analyst Stephen Fisher wrote in a note cited by Bloomberg. The analyst estimates that revenue from the sale of backup generators for data centers in the U.S. could grow by about $1.5 billion for each of the two companies. Nevertheless, he expects that the main drivers of profit will remain traditional areas - at Caterpillar it is construction equipment.

- In the new Caterpillar report, investors are likely to be primarily interested in the key factor of future growth: the rapidly growing demand for electricity from data centers, Investopedia writes. Familiar bulldozers, excavators and dump trucks "will move into the background," the publication quotes a note from analysts at BofA Global Research, who recommended buying Caterpillar shares. The company's profit in the coming years is expected to be provided by supplies of equipment for reserve and primary energy generation, solar turbines and gas pipelines, analysts of BofA Global Research believe.

The Energy & Transportation (E&T) segment already accounts for about 40% of Caterpillar's revenue, according to Bank of America. The divisions within this area, including the generator business, "continue to grow faster than the rest of the company," the bank's analysts noted back in June. In 2024, E&T accounted for about $29 billion of the $65 billion in total revenue - more than the construction and materials divisions.

- Caterpillar's annual revenue from sales of data center power equipment could triple by 2030, with most of the growth coming from demand for primary power generation, Barclays analyst Adam Siden wrote Tuesday, whose note was cited by Bloomberg.

- In turn, Morgan Stanley analyst Angel Castillo maintains a "bearish" view on Caterpillar shares because of signs of oversupply in the construction market and cautious forecasts of the company itself on non-residential construction, writes Investopedia. Caterpillar's quotes, which are now near all-time highs, are "priced for a perfect scenario," the analyst says. However, he notes that the company's success in energy and transportation could play a positive role. "Even a small quarterly increase would be enough to keep things positive," Castillo wrote last week.

According to the consensus of Wall Street analysts, the average target price on Caterpillar shares is around $497 - 6% below Monday's closing level of $527, Investopedia writes. According to MarketWatch, of the 27 analysts tracking the heavy equipment maker's shares, 13 advise holding them in the portfolio (Hold), 12 advise buying (Buy and Overweight), and two recommend selling (Underweight and Sell).

This article was AI-translated and verified by a human editor