Cummins, Caterpillar to Get Boost From Data Center Boom
Sales of Backup Generators to Lift Revenue Over Next Three Years, UBS Says
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Heavy machinery makers Caterpillar Inc. and Cummins Inc. will get a “meaningful” boost to earnings in the next three years as revenue nearly doubles from selling backup generators to help power U.S. data centers, according to UBS.
Revenue for that business could grow by roughly $1.5 billion for each company, analyst Steven Fisher wrote in a note to clients. He still expects the firms’ largest businesses — construction equipment for Caterpillar and the trucking sector for Cummins — to be the primary drivers of earnings.
“Our base case suggests revenues from generator sales for U.S. data centers could come close to doubling,” Fisher wrote. “However, it is off of a relatively small base for each.”
Hungry for exposure to a boom in artificial intelligence, investors have piled into shares of old-line industrial companies that make equipment used to generate power for data centers. Caterpillar shares have soared 45% this year, while Cummins is up 20%.
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A buildout in data centers will also be a “modest” contributor to Caterpillar and Cummins’ construction businesses, Fisher added. In a separate note published Oct. 28, Barclays’ Adam Seiden estimated that Caterpillar could triple its annual data center power revenue by 2030, with the majority of the growth coming from demand for primary electricity generation.
The AI trade is not just one way, though, as some investor expectations may be outstripping reality. Stocks linked to power demand, from Caterpillar to nuclear reactor company Oklo Inc., have beenvolatilein recent sessions amid signs that electricity demand growth may not live up to Wall Street’s wildest hopes.
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