Why CAT Stock's Bull Run Might Not Be Over

Core Viewpoint - Caterpillar is experiencing a significant decline in profits due to unfavorable manufacturing costs from higher tariffs, despite having strong momentum and solid fundamentals [2][5] Financial Performance - Caterpillar reported a 21% decline in profits for the second quarter, attributed to increased manufacturing costs [2] - The company has a record total order backlog of $51.2 billion, which rose 71% year-over-year, providing notable revenue visibility [6][7] - The Power & Energy segment's sales increased by 44% year-over-year in Q4 2025, driven by demand from AI data centers [6] Market Position and Growth Drivers - Caterpillar is tapping into a new revenue stream from AI data centers, which is expected to provide long-term growth and counterbalance typical cyclicality [3] - The company secured a 2-gigawatt generator order for a single data center campus, highlighting its market leadership [6] Margin and Profitability Concerns - The adjusted operating margin decreased by 270 basis points year-over-year in Q4 2025 to 15.6%, indicating structural margin pressure from tariffs [7] - Long-term profitability metrics show an average operating cash flow margin of 18.4% and an operating margin of 18.7% over the last three years [6] Investment Sentiment - The investment debate centers around whether the substantial backlog and AI-driven growth can offset cyclical slowdown risks and immediate margin pressures [5] - The general consensus on Caterpillar's stock leans neutral due to the tension between backlog strength and margin pressures [5]