Caterpillar's Record $63 Billion Order Backlog Fuels Growth Concerns
Caterpillar, the equipment manufacturer, has seen its order backlog reach a record $63 billion at the end of the first quarter. This represents an increase of 79% year-over-year and is primarily driven by demand for power generation sales, which rose 41% to $2.8 billion.
The growth in power generation sales can be attributed to data center applications, with large reciprocating engines and turbines being used as primary or backup power sources. Caterpillar has responded by expanding its capacity to nearly triple 2024 levels, with most of the additional capital expenditures allocated for 2027 through 2029.
Management has raised long-term sales growth targets alongside this announcement, citing customer commitments to longer-term orders extending into 2028. The backlog conversion rate is also working in Caterpillar's favor, with sales growing 22% last quarter despite the swelling order book.
However, there are risks associated with a long-dated backlog, including potential rescheduling or cancellation of orders due to regulatory changes or economic uncertainty. New York has imposed a statewide moratorium on new hyperscale data centers, and further state action could impact Caterpillar's pipeline behind 2027 and 2028 orders.
With the company's stock priced at around 41 times earnings, investors are waiting to see if AI power demand continues to fill the order book. The second-quarter report will provide insight into whether the backlog is still climbing and power generation sales remain strong.