Irving, Texas-based Caterpillar Inc. (NYSE: CAT) delivered a first-quarter earnings surprise on Thursday, powered by surging demand for power-generation equipment tied to artificial intelligence data centers. The industrial giant reported adjusted earnings per share of $5.54, easily surpassing the Bloomberg consensus estimate of $4.63, while total sales and revenue climbed 22% year over year to $17.4 billion.
Data Center Boom Drives Power & Energy Segment
The standout performance came from Caterpillar's Power & Energy unit, which posted sales of $7.03 billion, a 22% increase. Within that, power-generation revenue skyrocketed 41% to $2.82 billion, with the company attributing the vast majority of that growth to demand from data center projects. This reflects the broader trend of AI expansion moving beyond chips and servers into heavy industrial infrastructure, as these facilities require massive, reliable electricity and backup power.
All three of Caterpillar's core divisions posted gains in the quarter. Construction Industries sales rose 38% to $7.16 billion, boosted by stronger dealer inventories and improved pricing, particularly in North America where sales jumped 48%. Resource Industries added 4% in sales, though profit in that segment dropped 39% due to higher manufacturing costs.
Record Backlog Signals Sustained Demand
Chairman and CEO Joe Creed characterized the results as a "strong start to the year," pointing to Caterpillar's record backlog as evidence of continued demand. The company's backlog stood at $62.7 billion at the end of the first quarter, up $11.5 billion from the previous quarter and $27.7 billion higher than a year ago. Caterpillar generated $1.9 billion in enterprise operating cash flow and returned $5.7 billion to shareholders through buybacks and dividends during the period.
On a GAAP basis, per-share profit came in at $5.47, up from $4.25 a year earlier. Operating margin edged down to 17.7% from 18.1% in the prior-year period, reflecting higher manufacturing expenses.
Tariff Costs Cast a Shadow
Despite the strong top-line performance, tariff costs remain a significant headwind. Caterpillar expects tariff expenses of $2.2 billion to $2.4 billion for the full year 2026, with about $700 million anticipated in the second quarter alone. The company pointed to a jump in manufacturing expenses—largely driven by tariffs—as a drag across Power & Energy, Construction Industries, and Resource Industries. Price increases and working through the record backlog will need to offset these pressures.
Looking ahead, Caterpillar projects low double-digit sales and revenue growth for 2026, along with an increase in Machinery, Power & Energy free cash flow compared to 2025. The company also expects its full-year adjusted operating margin to exceed earlier forecasts.
Market Reaction and Industry Context
Shares of Caterpillar jumped nearly 5% in premarket trading following the earnings release, according to Reuters. The results underscore how the AI boom is creating unexpected tailwinds for traditional industrial companies. Caterpillar is not alone in benefiting: Generac Holdings, a competitor in backup power, raised its annual sales outlook on Wednesday after a better-than-expected first quarter, citing swelling demand and a larger order backlog from data center clients.
Deal activity is also accelerating. ProPetro Holding Corp.'s PROPWR unit announced a framework agreement with Caterpillar to purchase up to 2.1 gigawatts of power-generation assets—enough to serve a substantial lineup of data center, oil and gas, and industrial customers. Tara Rossman, Caterpillar's senior vice president for Oil & Gas and Marine, emphasized the focus on "reliable, scalable solutions."
The key question for investors moving forward: will tariff costs cut so deeply into margins that they blunt the lift from the data center boom? Caterpillar's record backlog and strong cash flow provide some cushion, but the tariff overhang remains a wildcard for the rest of 2026.
