Caterpillar profits driven by demand from AI data centers

These are good times for Caterpillar. The company that makes all of that yellow heavy construction equipment — previously of Peoria, Illinois, now based in Irving, Texas — reported profits that beat Wall Street's expectations Thursday morning.

The company's shares are up more than 50% over the last year, thanks, in large part, to artificial intelligence.

Caterpillar builds excavators and dump trucks. But another component it makes has been driving the AI boom, said Kristen Owen, a senior analyst with Oppenheimer.

“When you think about what helps those big machines that we know Caterpillar for, it’s large engines,” she said.

Lately, the firm is connecting more and more of its engines to electrical generators, because there’s one industry demanding a lot of them these days — AI data centers, said Conor Andrus, managing partner at Joule, a company that develops such centers.

“We have on order over 600 natural gas reciprocating engines from Caterpillar,” he said. “We’re working on a 4,000 acre campus in central Utah.”

That project won’t be drawing power from the grid, Andrus said. Instead, it will generate electricity on site, with all those Caterpillar engines. He said they’re a good solution for data centers because they run on natural gas.

“It’s abundant,” he said. “You can scale it very quickly.”

“Quickly” is the operative term here, said David Victor, a professor of public policy at the University of California, San Diego.

 “The folks who are developing these AI data centers are in the middle of an arms race,” he said.

Power supply is often the bottleneck, he said.

“You’re raising massive amounts of capital and trying to deploy that as quickly as possible,” Victor said. “Time to market for your power projects really matters.”

Connecting to the grid can take years of permitting reviews. So many data centers are opting to power themselves, with solar, wind, or even by reopening nuclear plants.

Andrus said he considered solar and geothermal power for his company’s data center in Utah.

“The fact of the matter is those are hard to scale, certainly at speed,” he said.

Some of Caterpillar’s competitors are sold out pretty much through the end of this decade, said Rob Wertheimer, an analyst with Melius Research.

“So if you want power before that, and you’re not already on the list, your options have to change,” he said.

Power generation, right now, is Caterpillar’s fastest-growing segment.