The Surprising Dow Stock That Has Outperformed Nvidia by 2-to-1

Core Viewpoint - Caterpillar (CAT) has significantly outperformed Nvidia (NVDA) over the past year, with a stock increase of 104% compared to Nvidia's 50% gain, driven by strong demand in power generation, heavy machinery, and infrastructure projects related to AI and mining [2][6][15]. Financial Performance - Caterpillar reported record full-year sales of $67.6 billion for 2025, with adjusted earnings per share (EPS) of $19.06, surpassing Q4 estimates of $4.70 [2][7]. - The company ended the year with a record order backlog of $51.2 billion and generated $11.7 billion in operating cash flow [2][11]. Market Position and Demand Drivers - The outperformance of Caterpillar is attributed to tangible demand for power generation equipment and heavy machinery, particularly for AI data center buildouts and copper mining operations [3][9]. - Caterpillar's Energy & Transportation segment benefited from strong demand for prime power solutions tied to AI builds, contributing to its record results [9][10]. Competitive Analysis - Caterpillar outperformed its peers in the Manufacturing – Construction and Mining industry, achieving a return of 104.2% compared to the group's 99% return over the past year [8]. - Deere (DE) lagged behind with a lower return on equity of 21.97% compared to Caterpillar's 47.16% [2][10]. Future Outlook - The record backlog provides visibility into 2026, with management guiding for sales growth of 5% to 7% supported by backlog conversion and pricing discipline [11][15]. - Services revenue is projected to exceed $30 billion annually by 2030, indicating a strong growth trajectory [11]. Risks and Valuation - Caterpillar faces $2.6 billion in incremental tariff costs for 2026, which could compress margins [13]. - The stock trades at a premium trailing P/E of 36.2, significantly above its five-year average of 19x, indicating potential valuation risks [14].