AI data centers are putting pressure on the US electrical grid in ways that did not seem possible just a few years ago, and that strain is a direct benefit to heavy equipment manufacturers, not just chipmakers. US data center power consumption is expected to increase by 22% in a single year, with total grid demand nearly tripling to 134.4 GW by 2030 as hyperscale buildouts gain speed.
Considering grid capacity cannot be increased quickly enough to meet that curve, on-site and backup power production has become a significant portion of AI infrastructure spending, with Caterpillar Inc. (NYSE:CAT) alone accounting for an estimated 18% of the data center generator market. Notably, the company has come to be one of the Dow’s best-performing stocks so far in 2026, with a year-to-date return of 47.81%.
Record Backlog and P&E Pivot
The company’s Q1 2026 revenue came in at $17.4 billion, up 22% year-over-year, with adjusted EPS of $5.54, above expectations. The backlog behind that expansion seems to be the real story, with Caterpillar Inc. (NYSE:CAT) closing the quarter with a record $63 billion in order backlog, an increase of 79% year-over-year and $11.5 billion sequentially, owing to major project wins like Altus and Chevron, growing rental demand, and strong Mining segment order conversion.
CEO Joe Creed told analysts that the company’s massive engine backlog, which directly powers AI data centers, has grown by over 3.5x since Caterpillar first revealed capacity expansion plans back in January 2024.
This backlog progress led Oppenheimer to lift Caterpillar’s price target to $1,105 from $980 on July 13, while keeping an Outperform rating, expecting high-margin Power & Energy deliveries to accelerate in the second half of the year. However, underlying margin trends indicate rising friction. Resource Industries segment margins fell by over 700 basis points year on year in Q1, to 10%, owing to roughly $600 million in quarterly tariff charges. With full-year tariff headwinds of $2.2 billion to $2.4 billion, Caterpillar’s cost structure is under significant pressure even as top-line demand grows.
Michael Burry’s Short Position
That being said, the valuation is where Caterpillar’s risk story comes into play, and the numbers are stark. Caterpillar’s trailing P/E ratio is around 43.75x, while its forward P/E stands at around 28.87x. Caterpillar also trades at over 31x EV/EBITDA, providing a significant premium over industrial equipment peers such as Cummins, which trades at 19.51x. The market has essentially priced a 100-year-old heavy equipment manufacturer as if it were a high-margin software platform.
Michael Burry of Scion Asset Management made a high-profile action in response to the significant valuation disparity. On June 30, Burry reported a new short position in Caterpillar Inc. (NYSE:CAT) at $1,060.98 per share, describing the stock’s steep AI-driven advance as an overinflated value bubble. Burry’s thesis is based on the assumption that cyclical heavy equipment manufacturers can’t maintain software-like multiples over a full operational cycle, especially when manufacturing input prices and tariff levies are reducing industrial margins.
Smart Money Sentiment
That said, hedge funds are waiting for the current scenario to play out, with Insider Monkey’s Q1 2026 database revealing that 87 funds held stakes in Caterpillar Inc. (NYSE:CAT) at the end of the quarter, a slight increase from 86 in the preceding quarter. Of these, Ken Fisher’s Fisher Asset Management led the pack, with a stake worth $6.92 billion.
Insider Monkey’s Bottom Line
Caterpillar Inc. (NYSE:CAT) is still a world-class industrial company capitalizing on a structural catalyst in data center power generation. However, paying 28-30x EV/EBITDA for a capital-intensive, tariff-exposed equipment manufacturer leaves no room for error. Michael Burry’s short entry at $1,060.98 accurately recognizes a cyclical peak in which AI confidence has entirely surpassed underlying earnings sustainability.
While we acknowledge the risk and potential of CAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CAT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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