Global data center energy usage is expected to rise 26% by 2026 to 565 terawatt-hours, while overall data center power demand will soar by 27% to 132 gigawatts. As grid capacity limits become the most significant bottleneck for hyperscalers, standby and prime continuous power generation systems have evolved into mission-critical equipment. For industrial titans Caterpillar Inc. (NYSE:CAT) and Cummins Inc. (NYSE:CMI), the steady demand for distributed power, along with strong North American construction expenditures, is driving record backlogs and prompting full-year guidance increases across the board.
Caterpillar: Record Quarter and Tariff Reliefs
The convergence of infrastructure investment and AI power demand was clearly visible when Caterpillar Inc. (NYSE:CAT) released its second-quarter 2026 results on August 4. Total sales increased 24% year-over-year to $20.5 billion, while adjusted earnings per share hit $8.17, greatly exceeding the $6.20 analyst average expectation and igniting a 9% premarket stock rise. Operating margins increased to 20.9% from 17.3% the previous year, indicating a significant improvement in efficiency. Construction Industries led the way, growing 35% to $8.3 billion on a 50% increase in North American demand, while Power & Energy increased 17% to $8.2 billion.
Trade difficulties also eased during the quarter. After incurring a $710 million negative manufacturing cost hit largely from tariffs in Q1, Caterpillar Inc. (NYSE:CAT) reduced its full-year tariff forecast to approximately $2.2 billion (down from $2.2-$2.6 billion) and won $392 million in tariff recoveries under the International Emergency Economic Powers Act (IEEPA). Cash generation was also strong, with operating cash flow of $4.4 billion. Management increased full-year revenue expectations to mid- to high-teens percentage growth (up from low-double-digits), while returning $2.2 billion to shareholders in Q2 alone, including $1.5 billion in share buybacks and $0.7 billion in cash dividends.
Cummins: Demand and Transport Tailwinds
In the same vein, Cummins Inc. (NYSE:CMI) told a very similar story of power-driven demand. The company reported record revenue of $9.5 billion, GAAP net income of $932 million, an EBITDA margin of 17.5%, and diluted earnings per share of $6.73. Synchronized demand from North American on-highway transport, Chinese construction activity, and high-performance generator sets for commercial data centers all helped operations.
Cummins Inc. (NYSE:CMI) increased its full-year revenue guide for 2026 to 10-13% growth (up from 8-11%) and its full-year EBITDA margin forecast to 18.0-18.5% (up from 17.75-18.5%). The company also maintained a disciplined capital deployment strategy, returning $501 million to shareholders in the quarter through dividends and buybacks.
Key Risks
Both companies are vulnerable to threats that might undermine the bullish narrative. Caterpillar Inc. (NYSE:CAT)’s results are largely related to North American construction and power-generation demand, both of which are cyclical, and the roughly $2.2 billion in estimated full-year tariff expenses, even after recent relief, is a significant drag that might re-escalate if trade policy swings again. Cummins Inc. (NYSE:CMI), on the other hand, has more diverse end markets, but this also implies more moving elements that may disappoint, including Chinese construction activity.
Both companies also compete for a data-center power buildout that, while currently solid, is dependent on sustained hyperscaler capital spending. Any slowdown in AI infrastructure investment would directly impact the power-generation segment that both companies rely on for growth.
Valuation Multiples and Smart Money Sentiment
Valuation trends show a wide pricing gap between the two industrial giants. Caterpillar Inc. (NYSE:CAT) is trading at a forward P/E multiple of 26.07x, the higher of the two, indicating optimism in the market for Caterpillar’s $4.4 billion in quarterly operating cash flow, expanding power-generation mix, and North American construction durability. Hedge fund support remains strong, with Insider Monkey’s Q1 2026 database showing that 87 funds owned stakes in Caterpillar Inc. (NYSE:CAT) at the end of the quarter.
This compares to Cummins Inc. (NYSE:CMI), which trades at a relatively moderate forward P/E of 18.50x. According to Insider Monkey’s 13F data, hedge funds holdings increased from 67 funds in Q4 2025 to 79 funds in Q1 2026, indicating institutional interest in Cummins’ and power-generation exposure at a lower valuation.
Insider Monkey’s Bottom Line
The valuation difference complicates the case for pursuing Caterpillar Inc. (NYSE:CAT) here. CAT investors are paying a premium for near-term momentum and lower tariff drag, leaving less room for error if construction demand slows or tariff relief turns out to be temporary. Cummins Inc. (NYSE:CMI) is a more appealing entry point on a relative basis, with double-digit revenue growth and improving margins, all at a lower multiple. Cummins Inc. (NYSE:CMI) may offer greater risk-adjusted value to investors wanting exposure to the power-generation theme, though Caterpillar Inc. (NYSE:CAT) appears to be better suited for existing holders than new capital until its valuation digests the recent surge.
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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