Caterpillar Inc. CAT

Caterpillar trades near 45× trailing earnings at ~$911 (and ~49× near its recent high) because the market has stopped pricing it as a machinery cyclical and started pricing it as a data-center power supplier. That multiple is almost double its 20-year average near 21×. The re-rating rests on the Power & Energy segment, where power-generation sales to data centers grew about 48% last quarter and total backlog hit a record $63 billion, up 79% in a year — visibility the market is capitalizing as recurring growth rather than a cyclical peak.

Caterpillar's Power & Energy segment (formerly Energy & Transportation) sells the large engines and gas turbines that generate electricity on site, and hyperscale data centers are buying them to get gigawatts of power years before the grid can connect them. In Q1 2026 power-generation sales to end users grew about 48% and oil-and-gas demand rose 16%. The large reciprocating-engine backlog has grown more than 3.5× since early 2024, and the company raised its 2030 target so power-generation sales run more than triple the 2024 baseline.

In the first quarter of 2026 Caterpillar reported $17.4 billion of revenue, up 22% year over year, and GAAP diluted EPS of $5.47, up about 30%; the adjusted figure was $5.54, though roughly $0.46 of that came from non-operational items. Power & Energy sales rose 22% and Construction Industries 38%, while Resource Industries profit fell 39% on tariff costs. The company also returned $5.7 billion to shareholders through buybacks and dividends in the quarter and lifted its full-year outlook.

By its own history, Caterpillar's ~45× trailing multiple is rich: it is nearly double its 20-year average near 21× and well above peers like Deere (~31× forward) and Cummins (~23×). Analyst consensus frames little room — a 12-month target around $940, only ~3% above the ~$911 price, with a very wide $575–$1,165 spread. The premium reflects the data-center power story and a record $63 billion backlog; what it leaves thin is any margin of safety if that multiple reverts toward its cyclical norm.

Caterpillar's total backlog reached a record $63 billion in Q1 2026, up about $28 billion — or 79% — from a year earlier, driven largely by data-center power orders. Its large reciprocating-engine backlog has grown more than 3.5 times since the start of 2024, and capacity is sold out years ahead, stretching past 2027. The company is expanding large-engine capacity from roughly twice 2024 levels toward three times, and in April agreed to supply about two gigawatts of gas gensets to American Intelligence & Power for hyperscale AI infrastructure.

The single biggest risk is the valuation itself: at ~45× earnings the stock is priced for the data-center power boom to be permanent, so a de-rating toward its ~21× norm could weigh on returns even if the business holds. The cyclical legs are already softening — Resource Industries profit fell 39%, and Construction's +38% sales were flattered by a ~$1.5 billion dealer build (users up just 7%). Tariffs add a guided $2.2–$2.4 billion cost in 2026, and consensus sees only ~3% upside from here.