Caterpillar Inc.

Analyst thesis

Our recommendation is based on:

• Caterpillar's (CAT) scale, dealer network and installed base provide a structural advantage versus the average industrial company. Its broad product portfolio, global dealer support, and more than 1.6 million connected assets strengthen customer retention, aftermarket capture, and pricing power, which should support more resilient earnings through the cycle.

• The business is well-positioned across several long-duration capex themes, including data centres, grid reinforcement, energy infrastructure, mining, and critical minerals. Power & Energy are becoming increasingly important parts of the investment case as growing demand for artificial intelligence (AI)/data-centre power increases the need for reciprocating engines, turbines and integrated power solutions.

• Services is a key earnings-quality lever, with FY25 Machinery, Power & Energy (MP&E) services revenue of $24 billion representing approximately 36% of group sales. This aftermarket, maintenance and lifecycle-support revenue is more recurring and annuity-like than original equipment sales, helping to reduce earnings volatility in an otherwise cyclical business.

• Order backlog increased by 79%, from $35 billion in 1Q25 to $63 billion in 1Q26, improving revenue visibility, particularly in Power & Energy.

• While the long-term fundamentals remain attractive, we believe the current share price already reflects a meaningful portion of the improved growth outlook. We therefore have a hold recommendation, balancing CAT’s stronger structural positioning against elevated valuation, tariff-related cost pressure, and normal cyclicality in its end markets.