CAT Stock Rides Data Center Boom

Caterpillar (CAT) stock has seen significant gains over the past year, rising 96.3% while the S&P 500 returned 19.1%. However, its Power & Energy segment experienced even more impressive growth, with sales to users increasing by 72% in the second quarter of 2026.

This surge in demand can be attributed to the growing need for large gensets and turbines used in data centers. Caterpillar's backlog reached $72 billion, a 92% increase from the previous year, and some customers have even placed orders as far out as 2030.

To meet this increased demand, Caterpillar is expanding its capacity by restarting a gas engine platform it had previously shut down. It also converted a work-tool plant in Wamego, Kansas to produce units used for data center power generation.

While revenue has accelerated to 18.4% growth over the past year, profitability has not kept pace, with operating margin sitting at 17.5%, below its three-year average of 18.7%. However, management expects adjusted operating margin to reach the bottom of its target range for full-year 2026, despite tariff costs of around $2.2 billion.