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Caterpillar Is Riding the Data Center Boom—But Is It Too Expensive Now?
Written by Leo Miller. Article Published: 2/4/2026.
Summary
- Caterpillar is extending its momentum into 2026 after a roughly 50% surge in 2025, keeping the stock firmly in focus for investors.
- Data-center buildouts are emerging as a meaningful tailwind, with Caterpillar expanding capacity to keep up with demand tied to AI infrastructure.
- The big question is whether that optimism is now fully priced in, leaving CAT vulnerable if growth expectations cool.
Amid a strong year for the industrials sector, U.S. machinery giant Caterpillar (NYSE: CAT) was one of 2025's biggest standouts. Using the Industrial Select Sector SPDR Fund (NYSEARCA: XLI) as a proxy, the sector delivered a total return of roughly 19% last year, ranking third among the market's 11 sectors.
Caterpillar's performance was markedly stronger: the company generated a total return of about 60% in 2025. A key tailwind has been data center buildouts, which have driven demand for several pieces of Caterpillar equipment.
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Get the name and ticker of one stock positioned for this shift.Investors have continued to buy into Caterpillar's growth narrative in 2026. As of the Feb. 3 close, shares were up roughly 23% year-to-date. The stock also got a boost from its Q4 2025 earnings report, released before the market opened on Jan. 29, which lifted the shares by about 3.4%.
But as CAT hits new all-time highs, do the company's fundamentals justify the valuation? Below we analyze the latest results and outlook.
CAT Posts Beats as Data Center Demand Leads the Way
Caterpillar's Q4 results were solid on both the top and bottom line. Sales rose 18% to $19.1 billion, comfortably above estimates of $17.8 billion, which implied growth of about 10%. Adjusted earnings per share (EPS) were essentially flat year-over-year at $5.16, but well ahead of the $4.67 analysts expected (which would have represented a 9% decline).
All of Caterpillar's segments grew in the quarter, but the biggest driver in 2025 was the Power & Energy division. Q4 sales in that segment climbed 23%, with growth accelerating each quarter and producing full-year growth of 12%.
Much of the Power & Energy demand is coming from data centers. Caterpillar supplies natural-gas turbines and diesel engines that serve as primary or backup power for these facilities, reflecting a broader shortfall in available energy capacity for data center operators.
Many data centers want to rely on low‑carbon sources such as wind, solar and nuclear, but building large-scale generation takes years and newer technologies like small modular reactors remain unproven at scale. In the near term, Caterpillar's fossil-fuel-powered equipment helps data centers meet their immediate energy needs.
CAT Expects Solid Growth for Several Years, Upward Revisions Possible
Caterpillar's 2026 guidance is modest: the company expects sales growth at the high end of its 5%–7% range and sees Machinery, Power & Energy (MP&E) free cash flow easing slightly versus 2025.
The opportunity looks more attractive over a multi-year horizon. Caterpillar projects 5%–7% annual sales growth through 2030 and is sitting on a record backlog of $51 billion, up 71% in 2025. That backlog provides a sizable pipeline the company can convert into revenue.
There's a meaningful chance management's revenue outlook is revised upward. Current sales guidance reflects today's capacity, but Caterpillar is expanding capacity—especially to serve Power & Energy demand.
The company plans $3.5 billion in capital expenditures for 2026, a roughly 25% increase versus 2025, to support that expansion. As new capacity comes online, Caterpillar should be able to convert more of its backlog into revenue.
Beyond data centers, rising commodity prices also bolster Caterpillar's resource industries business. Over the past year, gold and copper have climbed about 75% and 40%, respectively—higher prices that tend to encourage miners to invest in additional equipment.
CAT: A Strong Business Battling Its Valuation
The MarketBeat consensus price target for Caterpillar sits near $679, implying roughly 3% downside from current levels. Price targets published after the earnings report are more optimistic, averaging about $720, which implies only modest upside. Updated targets range from $625 to $805, implying potential moves of about -11% to +15%.
Caterpillar's business is clearly benefiting from favorable secular trends. Still, given the substantial run-up in the stock, the risk/reward looks relatively balanced at today's prices. That makes CAT a stock to watch — a pullback could present a more attractive entry point.
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