Cummins' Fastest-Growing Business Isn't Trucks. It's Data Center Power.

Core Insights - Cummins' shares have increased nearly 50% over the past six months, driven by rising orders linked to the AI boom [1] - The company is experiencing a significant shift from being primarily a cyclical play on long-haul trucking to benefiting from increased demand in data centers [1] Power Systems Segment - Cummins' power systems segment is crucial for advanced computing facilities, providing reliable standby energy [2] - Management projected annual revenue for the power systems market to reach around $2 billion in Q2 2025, which nearly doubled to $3.5 billion by Q4 2025 [4] - Power systems revenue grew 16% to $7.5 billion for the full year, with EBITDA margins improving to 22.7%, a 430-basis-point increase from the previous year [5] Distribution Segment - Revenue from the distribution segment, which includes sales, installation, and servicing of equipment, grew 9% to $12.4 billion, with margins rising to 14.6% from 12.1% [5] - Both power systems and distribution segments are becoming more profitable as generator sales increase [5] Order Book and Market Outlook - The order book for Cummins extends to 2028, indicating strong future demand [6] - The core engine and components segments, which account for nearly two-thirds of total sales, experienced declines last year, with engines down 7% and components down 13% [7] - Management anticipates flat to 5% revenue growth in the engine and components segments for 2026 as the market stabilizes [7] Accelera Segment - Cummins took a $458 million write-down in the Accelera segment last year, indicating a pullback from electrified power systems due to reduced government incentives [8] Financial Performance - Total revenue decreased by 1% last year, but adjusted EBITDA rose 9% to $5.8 billion, with margins expanding 170 basis points to 17.4% due to higher-margin power system sales [10] - The stock is valued at 22.5 times forward earnings, which is considered reasonable given its ties to the AI sector [11] - Cummins paid $1 billion in dividends last year, marking the 16th consecutive year of dividend increases, reinforcing its status as a stock worth owning [11]