During the October 1 episode of Mad Money, Jim Cramer discussed Caterpillar Inc. (NYSE:CAT) while reviewing the Dow Jones Industrial Average’s third-quarter losers. He pointed to the company’s growing role in supplying power for data centers and commented:
In the end, I think the best lessons from the third quarter came from the 30 stocks in the Dow Jones Industrial Average, which finished down 2.7%… Dow’s losers, worst for last: Caterpillar stock. That one’s like Corning. It had a monster run. Then it got hit with 24% profit-taking in the third quarter, just like Corning. Given that its engines have become a very good source of data center power, this might be a buying opportunity, even though the stock’s run huge.
Cramer previously explained the reason behind the company’s post-earnings pullback.
Data Center Power Orders Add to Business Growth
Caterpillar Inc. has secured substantial orders tied to data center electricity demand. Under an agreement announced in January, American Intelligence & Power ordered 2 gigawatts of natural gas generator sets for its Monarch Compute Campus. Deliveries were scheduled from September 2026 through August 2027, with battery storage systems designed to help manage fluctuations in AI workloads. The order provides a concrete example of the opportunity behind Cramer’s comments, although the delivery schedule should not be confused with completed installations.
The company’s latest results also showed growth across its broader operations. Second-quarter sales and revenues increased 24% year-over-year to approximately $20.5 billion. Power & Energy segment sales rose 17%, while Construction Industries and Resource Industries grew 35% and 20%, respectively. Adjusted profit per share increased to $8.17 from $4.72, and the adjusted operating margin expanded to 21.9% from 17.6%. Enterprise operating cash flow reached approximately $4.4 billion. The company also announced an AI related partnership last month.
Tariff Costs and a Premium to Cummins
Trade costs remain a meaningful expense. Caterpillar Inc. updated its outlook, calling for approximately $2.2 billion in full-year tariff costs, excluding expected IEEPA tariff recoveries recorded in the second quarter. Its quarterly disclosures also identified supply chain disruptions, inflation and labor pressures among the external factors management was monitoring. These costs remain relevant even as higher sales volumes support profitability.
The valuation also requires more than a recovery from the recent share-price decline. Caterpillar trades at approximately 29x forward earnings, compared with 16x for Cummins Inc. (NYSE:CMI), a competitor in engines and power generation. It also trades at a notable premium to its sector median. However, the two companies’ business mixes differ, especially because of Caterpillar’s construction and mining operations, but the comparison shows a substantial premium. Sustaining that premium depends partly on whether the company can maintain stronger growth as its power orders convert into sales. You can also read about Caterpillar and other giants pivoting toward AI data centers.
Fund Ownership Edges Lower as Short Interest Remains Modest
Insider Monkey’s database of more than 1,000 hedge funds showed 84 funds holding Caterpillar Inc. in the second quarter, compared with 87 in the first quarter. That represents a modest decline in the number of holders, rather than evidence by itself of a comparable reduction in total hedge fund investment. Among those hedge funds, Fisher Asset Management held the most prominent stake with around 9.9 million shares in Q2. Short interest stood at 2.03% of the public float, highlighting relatively limited outright short positioning.
Cramer’s buying-opportunity comment has support in Caterpillar’s power-generation orders and broader operating growth. The main valuation question is how much of that opportunity is already reflected in its premium to peers like Cummins.
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