Caterpillar reported a Power & Energy segment revenue of $8.2 billion during the June 2026 quarter, nearly matching its Construction Industries division sales of $8.3 billion.
The AI Power Surge Transforming Caterpillar’s Revenue Mix
For decades, the name Caterpillar was synonymous with yellow iron on heavy-duty construction sites. That foundational identity is shifting rapidly. Starved for electricity, artificial intelligence data centers are turning to industrial equipment makers for auxiliary and primary power solutions. This unexpected demand engine has turned a once-ancillary product line into one of the company’s most lucrative profit centers.
During the June 2026 quarter, Power & Energy segment revenue reached $8.2 billion, marking a 17% increase from the same period a year earlier. That performance brought the unit within striking distance of Construction Industries, which posted sales of just over $8.3 billion. More telling than top-line revenue is profitability. Power & Energy operating profit of slightly more than $2 billion edged out the construction division’s profit of just under $2 billion, demonstrating the widening pricing power and margins of the power division.
Grid constraints have forced data center operators to buy Caterpillar’s combustion-powered generators for auxiliary and even primary power, while customers with deeper pockets are choosing natural gas turbines to secure uninterrupted electricity.
Investors mostly know Caterpillar (NYSE: CAT) as a maker of bulldozers and backhoes, and construction equipment is still a huge part of its business, to be sure. What was only an ancillary part of its business mix, however, is quickly becoming an important profit center for the company. This new center is Caterpillar’s power generation unit, which offers conventional combustion-power generators, gas turbines, and even some solar power solutions.
Evolution in the Construction Channel and Record Totals
The data center boom is not restricted to power generation. The heavy earth-moving and site preparation required for sprawling data center campuses helped drive North American sales up 50% in the June quarter for Construction Industries. Combined, the power and construction segments accounted for 81% of total revenue in the quarter, propelling total company revenue past the $20 billion threshold for the first time in history to hit $20.5 billion, up 24% year over year. Adjusted earnings per share climbed to $8.17 from $4.72 a year earlier, while the operating margin expanded to 20.9% from 17.3%.
Beneath the headline sales figures, the mechanics of construction growth have evolved. Through 2025, management consistently credited merchandising programs for Construction Industries’ outperformance, pointing to 5% full-year sales-to-users growth in 2025. On the second-quarter 2026 earnings call, however, that term appeared exactly once, in response to an analyst question, and not at all in prepared remarks. Rental fleet loading and Major Projects—a dealer-owned rental joint venture that took delivery of its first units in the June 2026 quarter and will serve large-scale infrastructure, energy, and data center builds—have replaced merchandising as the primary drivers. Construction Industries’ sales to users rose 22% in the June quarter, marking a sixth consecutive quarter of growth, against the 5% full-year pace credited to merchandising in 2025.
This shift from merchandising-led demand to dealer-channel loading represents a distinct change in the quality of growth. The Trefis High Quality Portfolio, which selects holdings based on data rather than management narrative, has flagged the transition as a reason for caution. A demand story that changes this substantially in two years is exactly the kind of instability the portfolio is designed to avoid.
Valuation at a Crossroads and Future Outlook
Wall Street has priced the stock like a technology play riding the artificial intelligence revolution. Shares have surged roughly 90% over a 12-month span, driving the forward price-to-earnings ratio above 30. That valuation makes the industrial stock more expensive on a forward basis than technology leaders like Microsoft, Alphabet, and Nvidia, companies whose core businesses are AI rather than merely adjacent to it.
Management responded to the sustained momentum by raising its full-year 2026 sales and revenue growth forecast to the mid-to-high double-digit range, up from the low-to-mid double-digit guidance issued in April. Furthermore, the company’s order backlog stands at $72 billion, having grown 92% year over year for the three months ending in June, with select orders stretching as far out as 2030.
Despite the premium multiple, analysts seem to think so anyway. Indeed, most of them are saying Caterpillar shares still aren’t fully valued. The analyst community’s current consensus price target of $991.21 is more than 20% above the ticker’s current price, allowing room for an even richer valuation. Only time will tell how long investors are willing to support such a premium valuation. But, given the amount of money already earmarked for investment in AI infrastructure and how quickly that money is intended to be deployed, it’s conceivable this could be the new valuation norm for several more years.
