Caterpillar: how the US machinery giant is harnessing AI and seeing its share price rise

Finally: the American company is investing in the automation of construction sites and the integration of intelligent driver-assistance systems, with a view to reducing fuel consumption, improving operational precision and supporting an increasingly scarce workforce. In short: AI is an integral part of the business model.

With this in mind, Caterpillar – given that the issue of data centres is not a temporary one – intends to increasingly focus its Power & Energy division on the energy demand required to operate data centres. The Investor Day presentation estimates that global demand for MW for data centres will double by 2035. Indeed: Caterpillar forecasts an expansion in production capacity for large engines and gas turbines, doubling and increasing to 2.5 times the 2024 levels respectively. All this is aimed at more than doubling Power Generation sales by 2030.

So far, here are some insights into Artificial Intelligence and Energy & Transportation. There are, however, further business areas. Among others: the so-called Construction Industries. That is to say: machinery for construction and infrastructure. The division closed the third quarter of 2025 with revenues up (+7 per cent) and operating profit down to 1.37 billion. On closer inspection, this financial trend is – more or less – mirrored in the Resource Industries segment. That is to say: the segment comprising machinery and solutions for mining, quarries and large-scale industrial projects (ranging from mining trucks and large-scale excavators to drilling rigs and fleet management technologies). In this segment – again in the third quarter – turnover rose by 2 per cent, whilst operating profit fell by 19 per cent. These trends relate to two key areas for Caterpillar, which – amongst the various reasons for the decline in profitability – share a common cause: the impact of the tariffs imposed by Donald Trump. The company – overall and across all divisions – reported, between early July and late September 2025, a negative impact of 686 million on so-called production costs. These increased costs are largely due to the entry into force of the tariffs. So much so that the group – as things stand and without taking into account any potential intervention by the Supreme Court – estimates that the impact of the tariffs on the whole of 2025 will be between 1.6 and 1.75 billion, net of measures to mitigate the impact of these tariffs and cost-control initiatives.

Finally, returning to the individual business areas, it is worth mentioning the Financial Products segment. That is to say: the financial division that offers leasing, loans, insurance solutions and risk management to customers and dealers. This is highly significant because, on the one hand, many customers will only purchase vehicles if they have access to leasing, loans and insurance cover; and on the other, because it generates stable financial revenue, thereby strengthening the relationship between the company and its customers. Well, in the last quarter, this division saw revenues rise (+4 per cent) and operating profitability fall (-2 per cent). This trend is confirmed over the nine-month period, although profits have fallen more sharply compared with the same period in 2024. To put it another way: the third quarter performed reasonably well, whilst the period from the start of the year to the end of last September was affected by the long-term impact of increased credit risk.

In such a context, then, what are the market dynamics and valuation multiples for Caterpillar? With regard to its stock market performance, it should be emphasised that – along with other companies operating in the power generation sector – the share price rose in 2025 partly, and above all, on the back of the narrative surrounding Artificial Intelligence (AI) and the energy demand required to power the data centres needed for AI itself.

That said, according to Seeking Alpha, the current non-GAAP price-to-earnings ratio and the forward P/E ratio for 2025 stand at 28.6 and 29.4 times respectively. Generally speaking, these are not high figures but – as Seeking Alpha points out – they remain well above the median for the relevant sector. On closer inspection, the non-GAAP 3–5-year price-to-earnings-growth (PEG) ratio is also much higher when compared to that of the benchmark sector. In other words: the share is expensive, and the DIY investor must take this into account.

On the contrary, however, the momentum – according to Seeking Alpha – is excellent: the share’s performance over the past year ‘has outperformed that of the S&P 500, ‘indicating investor confidence and positive sentiment’. In short: Caterpillar, which boasts a diversified but typically cyclical business, has capitalised – and continues to capitalise – on the AI revolution. It is very difficult to predict to what extent this market mover (not the AI revolution itself, which will certainly continue) might rise, remain stable or fall over time in relation to the US company’s share price.