Caterpillar (CAT.N) delivered its best quarter ever driven by data center infrastructure demand, though tariff costs are pressuring margins going forward.
The heavy equipment maker’s record performance underscores the booming artificial intelligence infrastructure buildout, but rising trade costs threaten to dampen profitability in 2026.
Key Takeaways
- Record quarterly sales driven by data center energy generation demand
- Tariff costs expected to reduce first-quarter operating margins
- Full-year tariff impact projected at 1.6-1.75 billion
Market Reaction & Context
Caterpillar shares jumped in early trading Thursday before retreating, reflecting investor uncertainty about balancing strong demand against cost pressures 1. The stock has surged 50.61% over the past 120 days, significantly outpacing the broader industrial sector 2.
The Peoria-based company beat analyst expectations last quarter with earnings of 4.95 per share versus the 4.55 forecast, while revenue of 17.64 billion topped estimates 3. Third-quarter sales reached a record 17.6 billion despite ongoing tariff headwinds 4.
Data Center Boom Drives Growth
Caterpillar’s power generation equipment has become critical infrastructure for the AI revolution, with data centers requiring massive backup power systems. This demand surge has offset weakness in traditional construction and mining equipment markets.
The company’s energy and transportation segment has particularly benefited from utilities and tech companies building out power infrastructure to support energy-intensive AI workloads. Data center construction typically requires multiple Caterpillar generators and power systems per facility.
Tariff Pressure Mounts
Despite record sales, Caterpillar faces mounting pressure from trade tariffs that are eating into profit margins. The company anticipates tariffs will have a full-year impact between 1.6 billion and 1.75 billion, excluding mitigation efforts 4.
Management said the incremental tariff costs mean adjusted operating profit margins are expected to be lower in the first quarter. Including tariffs, Caterpillar forecast 2025 adjusted profit margins in the bottom half of its annual target range 5.
Outlook Remains Cautious
While data center demand provides a strong growth tailwind, Caterpillar must navigate the dual challenge of maintaining profitability amid rising input costs. The company’s ability to pass through tariff expenses to customers will be crucial for margin protection.
Analysts view the stock as fairly valued, with shares trading near the 588 fair value estimate despite recent gains to 598.41 6. The data center infrastructure theme continues to support investor interest in industrial equipment providers.
Not investment advice. For informational purposes only.
References
1Stock Analysis (2026). “Caterpillar (CAT) Stock Price & Overview”. Retrieved January 29, 2026.
2AInvest (January 12, 2026). “Caterpillar’s 11% Surge: A Data Center Trade or Tariff Trap?”. Retrieved January 29, 2026.
3Investing.com (January 28, 2026). “Caterpillar Faces Test on Data Center Power Demand”. Retrieved January 29, 2026.
4Manufacturing Dive (October 30, 2025). “Caterpillar posts all-time Q3 sales record of 17.6B”. Retrieved January 29, 2026.
5SME Mining Engineering (August 7, 2025). “Caterpillar warns of 1.5 billion hit as tariffs to hurt profit”. Retrieved January 29, 2026.
6Yahoo Finance (January 5, 2026). “Assessing Caterpillar (CAT) Valuation As AI Data Center”. Retrieved January 29, 2026.