For the past century, Caterpillar’s business cards have been its trademark macaroni yellow backhoes and bulldozers. Customers are increasingly interested in something else: the generators that power the artificial intelligence boom.
Caterpillar, along with Cummins, Generac and Rolls-Royce, is supplying dozens of these machines to hundreds of data center construction sites across the United States. Some generators can power more than 1,000 homes, allowing AI models and cloud software to run uninterrupted.
These giant devices turned out to be cash cows. The surge in demand for AI is driving hundreds of billions of dollars in spending, much of which has yet to flow to Big Tech’s usual suspects. Instead, it ended up in the hands of builders, blue-collar workers, and companies like Caterpillar and Cummins, which made unglamorous but important equipment.
Both companies have outperformed the S&P 500 over the past year, and their stock prices have further outperformed those of many major data center customers, including Amazon, Meta, and Microsoft. Like the pick and shovel suppliers of the old California gold rush, industrial vendors are cashing in on the AI boom.
Many non-tech companies are benefiting from AI spending, including companies like Primoris and Dicom Industries, which install the pipes and fiber that connect data centers to natural gas and the internet. Power generation companies are in a particularly advantageous position. As hyperscalers race to build power-hungry data centers, demand for backup and off-grid power is growing.
“The power generation business, in any form, has never been at this scale before,” Tom Shepard, a data center executive at Cummins, told Business Insider.
Data centers are a bright spot for industrial businesses
About a decade ago, Mr. Shepherd oversaw a $50 million-a-year community power generation business in Oklahoma that primarily sold Cummins systems to customers such as hospitals and wastewater treatment plants. He recalled that there was only one large data center operated by Google in his territory.
“We just didn’t have the scale,” he says.
Currently, Google’s parent company Alphabet has more than 20 data centers online or in development across the United States. The company has been revising its 2025 capital spending plans upward every quarter and estimates it will spend at least $91 billion by the end of the year. According to McKinsey, this is just a fraction of the $7 trillion that will be spent on data centers worldwide by 2030.
Demand for data centers is a welcome bright spot for a manufacturing-heavy industry facing threats such as tariffs, rising costs and persistently high interest rates. Business Insider previously used diesel generator aviation permits to estimate data center growth and found that if all permitted data centers came online, power usage could be as much as the entire state of Florida.
Sales of Cummins’ flagship truck engines have declined over the past year, but the company sold $2.6 billion of power generation equipment to the data center industry last year and expects that number to increase 30 to 35 percent this year, CEO Jennifer Ramsey said on a conference call last month.
Caterpillar’s power generation division (often abbreviated as Cat) grew from 8.4% of total sales in 2021 to more than 14% in the first nine months of this year. Rolls-Royce’s Power Systems division also reported record earnings in February, driven in part by 46% annual growth in data center sales.
Their stock prices also skyrocketed. Both hit record highs this week. Cat’s closing price on Wednesday was more than $590 a share, surpassing the all-time high it hit after beating its October profit, and Cummins’ stock price exceeded $507 on Wednesday.
Analysts are generally bullish. Over the past year, the share of analysts who think investors should buy Cat stock has increased from 41% to 54%, according to information tracked by the companies. In Cummins’ case, the share went from one-third to half.
Some analysts are sounding the alarm, but companies aren’t worried
Some indicators suggest the market has gone too far in pick-and-shovel trades. Morgan Stanley estimated in October that Cat’s power generation division was valued by investors at 60 to 100 times operating profit. For Nvidia, the same multiple was 25x. GE Verova, another electrical equipment business, had a multiple of 28x.
Melissa Busen, head of Cat’s power division, says she’s not worried. The company’s $39.8 billion backlog is nearly triple what it was five years ago, and its biggest customers are planning years ahead, Busen said.
Caterpillar has been selling huge devices to fuel the AI boom, and recently expanded its Indiana factory to increase production. caterpillar
If one of them runs into difficulties, others will take their place, she said. She said Cat has been providing products to the data center industry since the early 1990s and “we’ve been able to build a real partnership” with the new hyperscalers.
Last year, Cat broke ground on a $725 million expansion of its engine plant in Lafayette, Indiana, and currently employs 1,900 people. The expansion will more than double the company’s engine production required by data center developers and is expected to be operational in 2027. Expansion work is also underway at Rolls-Royce factories in South Carolina and Minnesota that make data center generator parts.
Data center construction in Asia and Europe is also part of the demand, and many generators are manufactured outside the United States. Earlier this year, Cummins announced plans to invest $200 million across its power generation manufacturing footprint in India, the UK and the US. The company plans to double the production capacity of the giant 95-liter engines that power the data center’s generators.
Funds aren’t just in backup generators that sit idle most of the time. In the power race, power companies can’t connect businesses to the grid fast enough. Catt and Cummins are increasingly receiving requests from hyperscalers like Microsoft, Amazon, Coreweave, and regional companies like Joule for natural gas-fired generators and turbines that can run 24/7 for months or even years.
Cat’s Busen said customers don’t want to just talk about engines and turbines, they want to talk about “completely integrated solutions” for their electrical needs, including batteries, inverters and control systems.
The biggest limiting factor right now is “society’s physical ability to build this kind of infrastructure,” Sheppard said.
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