A Member of Pat McKeough’s Inner Circle recently asked for his advice on the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.
Pat likes the firm’s emergence of its unique positioning as an essential “picks-and-shovels” provider to the AI revolution. Modern hyperscale data centres require immense, bulletproof backup power systems to protect against grid failures, and this company’s large reciprocating diesel and natural gas engines have become the gold standard of the industry. However, Pat notes the high valuation: the shares are trading at 34.4 times forward earnings.
Caterpillar Inc. (Symbol CAT on New York; www.caterpillar.com) is a leading maker of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.
The company distributes its products in 197 countries through a network of 157 independent dealers. Caterpillar receives a little over half of its sales from North America, followed by EMEA (19%), Asia Pacific (18%), and Latin America (10%). Its clients are mainly in the mining, logging, farming, construction, power and energy industries. The company also provides dealers and customers with equipment financing and insurance.
Here are the company’s key segments:
Power and Energy: This is the largest segment, accounting for around 40% of annual sales. Products and services include engines, generator sets, integrated systems and solutions, turbines and turbine-related services.
Construction Industries: This segment contributes around 35% of sales revenue and is focused on supporting customers with infrastructure and building construction applications.
Resource Industries: This segment contributes 17% of sales and develops and manufactures high productivity equipment for both surface and underground mining operations. It also furnishes hydraulic systems, electronics and software for its machines and engines.
Financial Products: This segment contributes about 8% of overall sales by providing financing, leasing, and insurance to clients.
Caterpillar continues to sign new contracts and enter strategic collaborations:
In August 2025, the company signed a partnership deal with Hunt Energy Company to deliver power solutions for datacentres. Specifically, Caterpillar will contribute its portfolio of power solutions, including natural gas and diesel generation equipment, gas turbines, switchgear, controls, and engineering design services. Hunt Energy will contribute its expertise in infrastructure development, project financing and operational execution for datacentre and distributed energy projects.
In November 2025, Caterpillar and Vertiv announced the signing of an agreement to collaborate on advanced energy optimization systems, also for AI datacentres. This initiative will integrate Vertiv’s power distribution and cooling portfolio with Caterpillar’s products and expertise in power generation.
In December 2025, the company announced the signing of another key agreement, with Vale SA, to expand its autonomous haul truck fleet in Brazil’s Northern System to about 90 trucks by 2028.
In January 2026, Caterpillar announced an expanded collaboration with Nvidia to develop AI-enhanced manufacturing systems.
In February 2026, the company completed the acquisition of RPMGlobal Holdings, which should enhance Caterpillar’s product lines. That Australian-based software company focuses on improving mine design, scheduling, simulation, haulage and finance decision-making. The purchase price was $728 million.
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Caterpillar’s revenues and earnings are sharply higher on strong demand
In the three months ended March 31, 2026, Caterpillar’s sales increased 22.2%, to $17.4 billion from $14.2 billion a year earlier. Revenue rose due to higher sales volume of $2.3 billion driven by changes in dealer inventories and equipment demand, alongside favourable price increases of $426 million. Revenue rose for all segments, with a 38.0% jump for the construction industries segment.
Excluding one-time items, earnings rose 30.4%, to $2.58 billion from $1.98 billion. Earnings rose due to higher sales volume and favourable price realization, which were partially offset by unfavorable manufacturing costs from higher tariff costs and increased research and other expenses. Per-share earnings rose 30.4%, to $5.54 from $4.25, on fewer shares outstanding.
Caterpillar’s outlook is positive, especially as its power and energy business serves the fast-growing AI datacentre industry.
In fact, the company is planning its biggest spending increase in 15 years to capitalize on demand for AI infrastructure. Namely, it will spend $725 million at its Lafayette, Indiana, plant to make more piston-driven engines for generators.
The stock is up 121.3% over the last year but now trades at a very high 34.4 times the forecast 2026 earnings of $22.74 a share. The shares yield 0.8%.
Recommendation in Pat’s Inner Circle: Caterpillar Inc. is okay to hold.
