Melius' Wertheimer: Caterpillar valuation has room to run as investors recognize AI-era role

Market Trends & Investment Opportunities - Melius Research upgraded Caterpillar's stock to a buy, citing AI-driven power demand as a potential game-changer, with a price target of $500, a street high [1] - The AI wave is creating new opportunities in power and grid infrastructure, benefiting companies like Caterpillar [2] - Demand for power at data centers is creating a new opportunity for companies providing power solutions [4] - Mining companies are disciplined in capital expenditure, which hasn't kicked off equipment demand yet [7] - There's a push to have everything made and dug up in the United States, potentially spurring new mine development [9] Company Performance & Strategy - Caterpillar (CAT) is seen as a tech-adjacent name due to its involvement in powering the energy trade [1][2] - CAT has a large engine business that extends to various industrial applications, including mining, fracking, and marine [3] - CAT has become a better-managed company with more aftermarket services, aiming to reduce cyclicality [5] - United Rentals is considered a phenomenal growth story in construction equipment rental [15] Industry Dynamics & Challenges - The power grid is under strain, leading to companies establishing their own power plants at data centers [4] - Developing a new mine in the US can take 10-20 years due to environmental regulations and other factors [10] - Reshoring and supply chain changes are spurring more investment in the US, but mining is a slow process [10][11]