Key Takeaways:
- Data Center Boom: Power generation sales exceeded $10 billion in 2025, growing over 30% year-over-year.
- Price Projection: Based on current execution, CAT stock could reach $790 by December 2028.
- Potential Gains: This target implies a total return of 20% from the current price of $657.
- Annual Return: Investors could see roughly 6.5% growth over the next 2.9 years.
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Caterpillar (CAT) just delivered record annual sales of $67.6 billion while navigating $1.7 billion in tariff headwinds. The company’s backlog surged to an all-time high of $51 billion, up 71% from last year, signaling extraordinary demand across its three primary segments.
CEO Joe Creed is capitalizing on the critical infrastructure programs and AI infrastructure buildout. Power generation revenue exceeded $10 billion in 2025, and the company recently announced one of its largest orders to date: 2 gigawatts of generator sets for the Monarch Compute Campus data center project, valued in the billions.
The company achieved an adjusted operating profit margin of 17.2% despite tariff pressures and generated a robust free cash flow of $9.5 billion. Management deployed $7.9 billion to shareholders through buybacks and dividends.
With this momentum, Caterpillar stock trades at $657, near its peak, offering upside for investors who recognize the company’s strategic position in power infrastructure.
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What the Model Says for Caterpillar Stock
We analyzed Caterpillar’s transformation into a critical supplier to the energy infrastructure powering AI data centers and cloud computing expansion.
The company is experiencing unprecedented demand in power generation. Beyond traditional applications, Caterpillar is capturing contracts for prime power solutions as data center operators seek alternatives to grid dependency.
The company has secured four orders totaling more than 1 gigawatt each for data center prime power applications.
Caterpillar’s diversification provides resilience.
- The construction industry grew sales to users by 5%, outpacing the global industry.
- Resource Industries is expanding autonomous trucking solutions, ending 2025 with 827 autonomous haul trucks in operation.
- The broad portfolio shields the company from single-market volatility while the AI infrastructure boom creates tailwinds across segments.
Using a forecast of 7.5% annual revenue growth and 22.2% operating margins, our model projects the stock price will reach $790 in 2.9 years. This assumes a 22.5x price-to-earnings multiple.
That represents a small expansion from Caterpillar’s historical P/E averages of 22.3x (one year) and 17.9x (five years). The multiple reflects ongoing tariff challenges and capacity constraints as the company ramps production to meet surging demand.
The real value lies in executing the power generation capacity expansion while maintaining margins through pricing discipline and operational efficiency.
Our Valuation Assumptions
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for CAT stock:
1. Revenue Growth: 7.5%
Caterpillar’s growth centers on power infrastructure expansion and healthy end markets across all segments.
Power generation is the primary driver. The company expects sales growth around the top of its 5-7% long-term target for 2026. The $51 billion backlog provides strong visibility, with approximately 62% expected to deliver within 12 months.
Management is working with customers on multi-year schedules, creating visibility through 2027 and beyond.
The construction industry should benefit from data center construction activity, continued infrastructure spending from government programs, and dealer rental fleet growth.
Resource Industries is seeing positive momentum in copper and gold mining, as well as strength in heavy construction and quarry applications.
The company is also achieving a favorable price realization of roughly 2% across total sales, partially offsetting tariff headwinds.
2. Operating margins: 22.2%
Caterpillar is managing profitability while absorbing significant cost pressures.
The company delivered an adjusted operating margin of 17.2% in 2025 despite $1.7 billion in net incremental tariff costs.
Excluding tariffs, margins would have been in the top half of the target range. For 2026, management expects incremental tariff costs of approximately $2.6 billion, or $800 million higher than in 2025.
However, Caterpillar is taking aggressive mitigation actions. Without these efforts, the tariff bill would be 20% higher.
The company is implementing sourcing changes, cost controls, and pricing actions to protect profitability. Management remains committed to operating around the midpoint of the margin target range over time.
Capital investments of $3.5 billion in 2026 will support capacity expansion, particularly in large engines and industrial gas turbines, positioning the company for sustained growth.
3. Exit P/E Multiple: 22.5x
The market values Caterpillar at 29x earnings. We assume the P/E will compress to 22.5x over our forecast period.
Execution risks from capacity expansion and tariff uncertainty weigh on the multiple. The company must successfully bring new production capacity online while managing supply chain challenges and maintaining quality across rapidly scaling operations.
As Caterpillar demonstrates its ability to capture the power generation opportunity and sustain margins through the tariff environment, the stock should command a premium to its historical average. The record backlog and multi-year visibility support a higher valuation than that of traditional cyclical industrials.
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What Happens If Things Go Better or Worse?
Heavy equipment manufacturers face cyclical demand and macro headwinds. Here’s how Caterpillar stock might perform under different scenarios through December 2028:
- Low Case: If revenue growth slows to 3.8% and net income margins compress to 17.9%, investors still see a 12.8% total return (2.5% annually).
- Mid Case: With 4.2% growth and 19.0% margins, we expect a total return of 37.4% (6.7% annually).
- High Case: If power generation accelerates and Caterpillar maintains 19.8% margins while growing at 4.6%, returns could hit 62.8% total (10.4% annually).
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The range reflects execution on power generation capacity expansion, tariff mitigation success, and sustained strength in construction and mining end markets.
In the low case, tariff costs worsen or data center power demand moderates faster than expected.
In the high case, prime power adoption accelerates beyond current forecasts, capacity comes online ahead of schedule, and the company achieves better-than-expected tariff mitigation.
How Much Upside Does Caterpillar Stock Have From Here?
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All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
If you’re not sure what to enter, TIKR automatically fills in each input using analysts’ consensus estimates, giving you a quick, reliable starting point.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
