Key Points
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Caterpillar makes earth-moving equipment and remote power systems.
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All of the company’s products are needed to support the build-out of AI infrastructure.
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Caterpillar is performing well, but investors may want to tread with caution.
- 10 stocks we like better than Caterpillar ›
Caterpillar (NYSE: CAT) is an iconic name in the industrial sector. The company’s yellow earth-moving equipment is a mainstay at construction sites worldwide. It also makes power systems that can provide electricity in remote locations. The company is well-positioned to support the build-out of the infrastructure needed for artificial intelligence. And Wall Street knows it, which is a problem.
How is Caterpillar doing?
In the first quarter of 2026, Caterpillar’s revenues increased by 22%. Adjusted earnings increased by an even more impressive 30%. The company’s backlog rose to a record $63 billion. That is 79% higher than it was a year earlier, rising by a huge $28 billion. Caterpillar has been doing very well, and it has a strong outlook for the future as it works off its record-setting backlog.
This industrial giant may not at first seem like an artificial intelligence play. But, as noted above, its equipment is used to build data centers, and its power systems provide electricity to them. The latter technology is increasingly important, given how long it can take to get a grid connection. And as states and consumers increasingly push back against AI data centers due to their negative impact on electricity prices, power looks like a major bottleneck. Caterpillar may not be a tech company, but AI is certainly a big story right now.
There’s a problem with Caterpillar
Wall Street is all-in on artificial intelligence right now, bidding up any company associated with the new technology. This helps explain why Cat’s stock price has risen 330% over the past five years. For comparison, the S&P 500 index (SNPINDEX: ^GSPC) is only up around 70%. If you bought the stock five years ago, you should be very happy right now.
However, if you are looking to buy Cat today, you should probably tread with caution. The big issue is valuation. After that huge price increase, the stock’s 6x price-to-sale ratio is more than double its five-year average of 2.6x. The 45x price-to-earnings ratio is also more than double its five-year average of 19x. The 22.5x price-to-book ratio is far above its five-year average of 8x. And while the dividend has been increased regularly for decades, the dividend yield is a miserly 0.7%, which is even lower than the 1% on offer from the S&P 500 index.
Cat is probably best left on the wish list
At this point, Caterpillar stock is only suitable for aggressive growth investors who believe the AI story has a long runway ahead. Dividend investors and value investors will likely find the stock unappealing after its massive price advance over the past five years. It may have a place on your wishlist, but think carefully about the price you are paying before you put it on your buy list. In fact, some current shareholders may even want to lock in their profits.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar. The Motley Fool has a disclosure policy.
