U.S. Machinery Data Center Power Gen: How big is the onsite and standby TAM and what's different about CAT and CMI? Chad Dillard +1 917 344 8469 chad.dillard@bernsteinsg.com Miguel Marques, CFA +1 917 344 8432 miguel.marques@bernsteinsg.com Specialist Sales Steve Song +1 917 344 8401 steve.song@bernsteinsg.com This note sizes the onsite and standby data center power generation TAM and compares strategic positioning of Caterpillar & Cummins. We draw on our proprietary data center power gen model (available i ...

Core Insights - Caterpillar has emerged as a leading performer in the Dow, driven by an AI-focused transformation, outperforming major tech companies like Nvidia and Microsoft [2][3] - Despite recent earnings growth challenges, Caterpillar's stock has increased over 45% year-to-date, significantly surpassing the Industrial Select Sector SPDR Fund's 18% gain and the S&P's 17% [3][5] - The company's energy and transportation segment is expected to become a primary growth driver, shifting focus away from its construction and resources segments [4][5] Financial Performance - Caterpillar's energy and transportation segment accounts for approximately 40% of total sales, contributing about $29 billion to the company's total sales of roughly $65 billion last year [5] - Analysts from Bank of America noted that the power generation business within this segment continues to outpace overall business growth [5] Market Sentiment - The upcoming third-quarter earnings report is seen as a critical moment for investors to assess the sustainability of Caterpillar's narrative as an AI investment [6][9] - Morgan Stanley analysts have indicated that Caterpillar shares are "priced for perfection," with an average price target of about $497, which is 6% below the recent closing price of $527 [7][9] - Concerns about an oversupplied construction market and cautious views on non-residential construction activity may pressure the construction segment, potentially leading to negative earnings revisions [8]