Caterpillar and Cummins: Undervalued Industrial Powerhouses in the AI Infrastructure Revolution

The artificial intelligence (AI) boom is reshaping global infrastructure, with data centers at the epicenter of this transformation. As hyperscale operators like Microsoft, Amazon, and Google race to expand their AI capabilities, the demand for reliable power solutions has surged. Caterpillar (CAT) and Cummins (CMI), long stalwarts of the industrial sector, are emerging as critical players in this new era. Their strategic positioning in the data center energy supply chain-providing backup generators, construction equipment, and maintenance solutions-positions them to capitalize on a market poised for exponential growth.

Strategic Positioning in the Data Center Energy Supply Chain

Caterpillar and Cummins are uniquely embedded in the data center energy ecosystem. UBS analysts project that generator sales to U.S. data centers could nearly double for both companies over the next three years, potentially adding $1.5 billion in revenue each, according to a Coinotag article. This growth is driven by the urgent need for backup power to sustain AI workloads, which require uninterrupted electricity. For example, a single hyperscale data center can consume as much power as a small city, making Caterpillar's and Cummins' diesel and natural gas generators indispensable, as noted in the Coinotag article.

Beyond direct generator sales, their core businesses-construction machinery for Caterpillar and truck engines for Cummins-benefit indirectly from data center expansion. Large facilities require extensive site preparation, and Caterpillar's excavators and bulldozers are frequently deployed in these projects, a point highlighted in the Coinotag article. Similarly, Cummins' engines power the trucks and heavy equipment used in data center logistics. This dual exposure amplifies their growth potential.

Valuation Metrics: Undervalued Relative to Peers

Despite their strong fundamentals, Caterpillar and Cummins trade at discounts compared to peers in the data center energy sector. As of Q3 2025, Caterpillar's P/E ratio stands at 22.2, while Cummins' is 18.9, according to an AAII article. In contrast, NextEra Energy (NEE), a key player in renewable power for data centers, trades at a premium P/E of 29.4x, per Simply Wall St. Similarly, Schneider Electric (SU) and ABB (ABBN.SW) have P/E ratios of 33.4x and 30.87, respectively, according to Investing.com and GuruFocus. These valuations suggest Caterpillar and Cummins are undervalued relative to their peers, particularly given their robust cash flows and expanding margins.

Analyst ratings further underscore this disparity. Caterpillar has a "D" for value and "C" for growth, while Cummins holds a "C" for value and "A" for growth, per AAII. In comparison, ABB's recent "overweight" rating from Morgan Stanley highlights its margin expansion potential, as noted in an Investing.com report, yet its P/E ratio remains higher than Caterpillar's and Cummins'. This discrepancy points to a market that underappreciates the industrial sector's role in powering the AI revolution.

Long-Term Catalysts: AI and Electrification

The long-term outlook for Caterpillar and Cummins is bolstered by two megatrends: AI infrastructure and electrification. Barclays analyst Adam Seiden forecasts that Caterpillar could triple its annual data center power revenue by 2030, primarily through primary electricity generation solutions, according to a Cryptopolitan report. Meanwhile, Cummins is leveraging its expertise in hybrid and hydrogen technologies to position itself as a leader in decarbonizing data center operations, a point highlighted by Simply Wall St.

The synergy between these trends and the companies' existing capabilities creates a flywheel effect. For instance, Caterpillar's recent investments in battery storage and hydrogen fuel cells align with data centers' push for sustainable energy, as noted in the Coinotag article. Similarly, Cummins' electrification roadmap, including its partnership with tech firms to develop AI-optimized power systems, reinforces its relevance in a rapidly evolving market, according to Simply Wall St.

Conclusion: A Compelling Investment Case

Caterpillar and Cummins are not just beneficiaries of the AI-driven data center boom-they are foundational to its success. Their dual exposure to backup power solutions and construction equipment, combined with undervalued stock metrics, presents a compelling opportunity for investors. As the demand for AI infrastructure accelerates, these industrial giants are well-positioned to outperform both their peers and broader market indices.