Caterpillar Inc. (NYSE:CAT) has been on Jim Cramer’s radar with respect to the AI data center buildout for quite some time now. In most of his appearances, the CNBC TV host has discussed the link between the firm’s power generation products and the need for data centers to generate power. Caterpillar Inc. (NYSE:CAT)’s stock is up by 101% over the past year and by 40% year-to-date. The firm reported its fiscal second-quarter earnings on August 4th. However, in a brief tweet earlier, the CNBC TV host discussed Caterpillar Inc. (NYSE:CAT) along with its peer firm Deere and commented that the divergence in the share price was due to the former’s exposure to data centers:
“CAT with data center-lower DE no data center– higher”
Cramer’s remarks, albeit brief, point towards the central debate for Caterpillar Inc. (NYSE:CAT). This debate, between the bears and the bulls, is about whether the firm’s exposure to the AI business will be a durable revenue driver. Naturally, the bulls believe that it will be, while the bears don’t. To strengthen their case, Caterpillar Inc. (NYSE:CAT)’s bulls point towards the firm’s order backlog. The firm’s second-quarter earnings saw it reveal a $72.1 billion backlog as it added $9.4 billion worth of orders in the quarter. Additionally, during Q2, Caterpillar Inc. (NYSE:CAT)’s power and energy business grew by 17% while “Power generation grew 72%, driven by very strong demand for large gen sets and turbines used in data center applications,” according to CEO Joe Creed.
On the flip side, the bears point towards potential headwinds such as regulatory hurdles towards data centers, as creating potential headwinds for Caterpillar Inc. (NYSE:CAT)’s shares. They also point towards the rich valuation, which has led the shares to soar over the past year, to suggest limited upside. Notably, one well-known bear is Michael Burry, who has shorted the stock. Burry quoted Caterpillar Inc. (NYSE:CAT)’s price-to-sales ratio and pointed out that it was at its highest level in three decades.
Comparing Caterpillar Inc. (NYSE:CAT) to Deere & Company (NYSE:DE), the difference in their valuation is quite stark. The former trades at a forward price-to-earnings ratio of 33.33 and a price-to-sales ratio of 5.41. On the other hand, the latter’s two metrics are 25.13 and 3.47, respectively, which makes the higher premium for the former. Falling in tune with what Cramer said, Deere & Company (NYSE:DE)’s narrative concerns the trends in the agricultural market, as the firm has little exposure to data centers.
Extending the comparison to hedge fund sentiment, 86 out of the 1,041 hedge funds part of Insider Monkey’s Q4 2025 database had held a stake in Caterpillar Inc. (NYSE:CAT). This figure sat at 87 out of 1,022 funds in Q1. Sentiment in Deere & Company (NYSE:DE) was more muted, with 60 and 62 funds owning a stake in Q4 and Q1, respectively. Short interest in Deere & Company (NYSE:DE) was higher at 2.47% of the float compared to 1.95% for Caterpillar Inc. (NYSE:CAT), which potentially indicates investor sentiment towards the agriculture market compared to data center power generation.
While Insider Monkey acknowledges 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 have limited downside risk. If you are looking for an AI stock that is more promising than CAT that has 100x upside potential, check out our report about the cheapest AI stock.
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Disclosure: None.
