America's industrial giants are getting a boost from the AI build-out that remains in its 'early stages'
AI euphoria has driven the stock market to record highs this year.
But investor enthusiasm has not been isolated to the Big Tech companies making high-tech chips and futuristic chatbots, which, to many, define the AI boom. America's heavy industry has also now been swept up in the fervor.
The latest example is Caterpillar (CAT). The industrial giant this past week reported that its power generation machinery brought in the biggest sales jump on the quarter. Caterpillar stock rose more than 11% following the results.
The company saw strong demand across its business lines, with an especially healthy outlook on infrastructure for AI data centers and the power needed to operate those assets.
The data centers used to train and run AI models require an immense amount of energy to operate for an already overstressed US power grid.
That has increasingly prompted developers to build their own power generation assets rather than wait in what can be a years-long queue for connection to the electric grid — the bread and butter of companies like Caterpillar.
Meta (META), for example, has published plans to power its massive data center campus in Richland Parish, La., at least partially with on-site natural gas turbines.
Reciprocating engines, which can be used as a backup power source for data centers if grid-provided electricity falters or as a primary source of power, notched the biggest jump in sales throughout Caterpillar's business for third quarter, with a 33% increase year-on-year, CEO Joe Creed said on the earnings call.
Caterpillar only sees demand for power generation growing further as the AI build-out continues, Creed said.
"I think we're at the early stages of the prime power opportunities, so we're excited to have more of those come online," Creed said. "So we have great confidence in the pipeline that's out there, and that's why we're putting the capacity in, and we continue to raise the capacity."
Caterpillar reported adjusted earnings per share (EPS) of $4.95 on $17.6 billion of revenue. Analysts were expecting EPS of $4.52 on $16.7 billion of revenue.
A day after Caterpillar's earnings print, Bank of America analysts boosted their price target for the company's shares to $650 from $594.
The data center buildout has been a boon for industrial companies writ large.
The Industrials (XLI) sector as a whole is up roughly 18% on the year, just slightly outperforming the S&P 500's (^GSPC) 17% rise, for which the AI boom is also largely responsible.
Fellow industrial giant Honeywell (HON) also cited demand for data centers as a bright spot on a strong third quarter earnings print last week.
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