Deere & Company (NYSE:DE) delivered a stronger-than-expected third quarter, with the company benefiting from a surprising source: the construction boom linked to AI data centers and infrastructure spending. Construction & Forestry sales increased 18% year over year, making it the company’s fastest-growing major segment. Deere also reported a 7% increase in quarterly net income to $1.38 billion, while EPS rose to $5.10 from $4.75 a year earlier.
The improvement was enough for Deere to raise its 2026 net income outlook to $4.75 billion-$5 billion, up from the previous lower end of $4.5 billion. The company also continues to believe that 2026 will mark the bottom of the current agricultural equipment cycle.
Still, Deere & Company (NYSE:DE)’s core farm-equipment business remains under pressure. Production & Precision Agriculture sales fell 6% in the quarter as farmers continue to deal with weak commodity prices and difficult farm economics. At the same time, Small Agriculture & Turf sales increased 12%, helped by better milk and beef prices.
Bull Case
The biggest reason to be bullish on Deere & Company (NYSE:DE) is the growing strength of its construction business. The 18% increase in Construction & Forestry sales shows that the company is benefiting from spending that has little to do with the current farm cycle. AI data-center construction, infrastructure projects, and other large-scale development are creating demand for Deere’s equipment. The company says customer backlogs now extend well into fiscal 2027, giving it strong visibility into future demand.
This diversification could become particularly valuable if the agricultural market takes longer to recover. Deere does not need its farm-equipment business to rebound immediately for the company to continue generating solid earnings. Construction is currently helping fill that gap, while the 12% increase in Small Agriculture & Turf sales provides another source of support.
There is also a potential recovery story developing in the agricultural business. Deere believes the current equipment cycle is close to its bottom, and early order trends, improving used-equipment inventories, and greater adoption of technology could support a gradual recovery. If farm conditions improve, Deere & Company (NYSE:DE) could benefit from both a recovering agriculture market and continued construction demand.
The latest results also show that Deere can manage through a difficult cycle. Revenue and earnings beat expectations, and the company raised the lower end of its full-year profit forecast. That suggests management is seeing enough stability across the business to become more confident about the remainder of 2026.
Bear Case
The main concern is that Deere & Company (NYSE:DE)’s most important business has yet to recover. Production & Precision Agriculture sales fell 6%, and weak commodity prices could keep farmers cautious about purchasing expensive tractors, combines and other equipment. Third Bridge’s Ryan Keeney warned that soft commodity prices could put a ceiling on any major recovery in farm-equipment sales.
There is also a question over how long the construction boom can continue at its current pace. AI-related data-center spending has created a major demand tailwind, but Deere’s recent construction strength could become harder to maintain if infrastructure or data-center investment slows. That would leave the company more exposed to its still-weak agricultural market.
Tariffs add another layer of risk. Deere received a $110 million tariff refund during the latest quarter, which helped its results. That benefit is not recurring, though. The company expects net tariff costs of roughly $750 million in 2026 and $1 billion in 2027. Those costs could put pressure on margins and offset some of the gains from stronger construction demand.
The stock’s reaction also raises the bar. Deere & Company (NYSE:DE) shares jumped nearly 9% after the results, meaning investors have already responded strongly to the improved outlook. If the agricultural recovery is delayed or construction demand starts to cool, the stock could become vulnerable to disappointment.
Conclusion
Deere & Company (NYSE:DE)’s latest results strengthen the bull case, but they do not mean the agricultural downturn is over. The company is currently being carried by a strong Construction & Forestry business, with AI data centers and infrastructure spending creating demand that is helping offset weakness in large farm equipment.
The more interesting opportunity is what happens next. If Deere is right that 2026 marks the bottom of the agricultural cycle, a recovery in farm equipment could eventually combine with the company’s stronger construction business and create a more balanced growth story.
For now, Deere looks better positioned than it did during the worst part of the downturn, but investors still need to see a genuine recovery in farm economics. Construction demand gives the company a valuable cushion, while tariffs and weak commodity prices remain the biggest risks to the recovery story.
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Disclosure: None. This article is originally published at Insider Monkey.
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