Caterpillar, a U.S. construction heavy equipment supplier, posted the biggest share price gain among this year's Dow Jones 30 Industrial Average components, drawing attention to the backdrop. Caterpillar, whose shares have surged about 60% this year, is a Dow Jones 30 component symbolizing traditional U.S. industry, but expectations for broader use of artificial intelligence (AI) have come to the fore recently, leading to a reassessment as an AI-related stock and a standout rally, analysts said.
On the 30th (local time), the Wall Street Journal (WSJ) reported, "For years, Caterpillar has built a $65 billion (about 94 trillion won) business centered on mining and construction equipment such as giant yellow dump trucks and bulldozers," adding, "But recently, as data center investment to support AI projects has surged, Caterpillar's power and energy business institutional sector has emerged as the fastest-growing revenue segment."
According to the WSJ, Caterpillar's share price is up 62% this year, more than triple the S&P 500's gain. Caterpillar, which traded in the $364 range (about 530,000 won) at the start of the year, closed at $578.61 (about 840,000 won) on the last trading day of the year, the 31st.
Caterpillar is also benefiting from the AI boom through another core business, the turbine engine and generator institutional sector. As data centers proliferate and fail to meet their massive power demand, they are moving to produce power on-site and are adopting generators in large numbers. In this trend, shares of generator competitors Cummins and GE Vernova also hit a record high this month.
David Gray, co-CEO of Zul Capital Partners, which is working on a data center project in Utah, said, "In many regions, the power grid has already reached its limits, so we are trying to generate power directly on-site," adding, "Caterpillar is a very important partner for us."
Zul Capital plans to purchase more than 700 natural gas-fueled generators from Caterpillar for the data center project, which is expected to consume about a quarter of Utah's total electricity usage. The WSJ said, "Power-hungry AI projects like the Zul project are a boon for Caterpillar."
With generator demand surging, Caterpillar is embarking on its largest factory investment in about 15 years. Caterpillar will invest $725 million (about 1.05 trillion won) in its Lafayette, Indiana, plant to expand production of piston engines for generators, while planning to more than double turbine engine capacity by 2030.
The WSJ assessed, "For Caterpillar, which in recent years has closed plants and focused on expense cuts to improve profitability, this investment is an important turning point."
For the time being, Caterpillar's business outlook is seen as bright. According to the International Energy Agency (IEA), global data centers' electricity demand is expected to triple by 2035. As a result, demand for Caterpillar's generators is also expected to steadily increase. Caterpillar expects the power and energy business institutional sector's compound annual sales growth rate to reach 5% to 7% by 2030.
Caterpillar CEO Joe Creed said, "Having gone through numerous capacity expansions at Caterpillar over the years, we know well that nothing is certain," but added, "This expansion is based on a clearer demand outlook than ever. The advent of Generative AI has clearly brought a turning point to Caterpillar's business."