- Caterpillar has emerged as a dominant AI player, with its products integral to the global infrastructure buildout.
- The company, which has lived and died by the AI trade, just had a banner day in the market. Sign up for First Trade, Business Insider's daily markets newsletter.
When I think of AI investing, I primarily think of hyperscalers and chipmakers. They're the two warring factions that represent the tension at the heart of the AI trade: Is it best to reward the companies making big investments, or to favor the firms being paid that money?
But outside of that critical nexus, there's a whole other world of AI stocks that may not appear as such on the surface.
One of the best examples right now is Caterpillar. As a native Midwesterner, I associate the company with tractors and farm equipment. But in recent years — as the Nvidias and Microsofts of the world have hogged headlines — Caterpillar has emerged as a critical piece of the global AI-infrastructure buildout. Among other items, it sells bulldozers, generators, and engines necessary for the construction of AI data centers.
Caterpillar did find itself in the headlines on Tuesday after a positively Microsoft-esque earnings report that crushed analyst estimates. A primary source of strength? The company's AI-enabled power and energy unit, which makes generators, engines, and turbines. The business has overtaken more traditional segments to become Caterpillar's biggest source of revenue.
The company reported a classic beat-and-raise, and also a record equipment backlog. Shares spiked as much as 13% before finishing 6% higher. That brought Caterpillar's year-to-date stock gain to 53%.
But to truly appreciate Caterpillar's role in the AI trade is to recognize its long-running market dominance. It's the best performer in the Dow since the start of 2025, posting a 142% surge over the period. Not bad for a company not known as an AI play.
The chart above shows Caterpillar's long-term dominance. But it also shows that more recently, Caterpillar has proven its AI-trade bonafides and sold off alongside chipmakers during this summer's pullback.
It fell for the same core reason: If AI demand wanes, the ongoing wave of infrastructure spending could slow as well. Live by the AI trade, die by the AI trade.
Ironically, Caterpillar's appeal as an AI stock might be its non-AI components. Outside of the power and energy segment, the company also has multiple other earnings engines, like construction, mining, and oil and gas.
Ultimately, if enthusiasm around AI cools, Caterpillar may be knocked off its perch as a market-crushing stock. But it still has other ways to keep growing its business, even if its AI dream fizzles.
Wall Street has largely caught on. The stock currently has 16 buy ratings, 11 holds, and zero sells, while the average 12-month price target sees 14% upside from Tuesday's close, according to Bloomberg data. I guess the secret is out.
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