Caterpillar's AI-Fueled Growth May Bounce Back Strongly

Caterpillar's recent correction may not last long due to its strong position in the artificial intelligence (AI) market. The company has been outperforming the S&P 500 by riding AI tailwinds, and a recent slowdown in AI development has had little impact on Caterpillar's growth.

Hyperscalers are ramping up their AI development, and power is a critical bottleneck. Caterpillar is at the center of this process since it provides essential power and construction services for data centers. Its power & energy segment increased by 17% year over year in the second quarter, with a $72 billion backlog that has almost doubled year over year.

The company's construction segment saw a 35% year-over-year revenue jump, mainly driven by high demand from AI data centers. This growth is expected to continue as hyperscalers gobble up existing gigawatts for their long-term projects, restricting the supply of remaining compute.