Deere & Co.: The Infrastructure Layer for AI-Powered Farming

The core investment thesis for Deere is a bet on a technological S-curve. It's a shift from selling machines that mechanize the field to selling the foundational infrastructure that will run it. This is not just an upgrade; it's a paradigm change. The convergence of artificial intelligence, the Internet of Things, and precision technology is creating a new layer of digital infrastructure for global food security, moving far beyond the static tractors of the past.

This new layer is built on intelligence. AI-powered systems, like CNH Industrial's SenseApply™ sprayer automation, use machine vision to apply treatments only where needed. These systems make complex decisions in real time to optimize inputs. The implication is direct: if you only spray where a weed exists, you don't need the broad-spectrum pesticides and fungicides that have been a staple of conventional farming. This isn't a future possibility; it's an accelerating disruption to the demand for chemical inputs.

The adoption curve is now exponential. By 2025, over 60% of large farms worldwide are projected to adopt AI-powered precision agriculture technologies. This isn't a niche trend. It's a mainstream adoption that will redefine the entire value chain. For a company like Deere, which has been at the forefront of this evolution since launching AutoTrac with GPS steering over two decades ago, this is the payoff for building the rails. The smart sprayer is a perfect example of the infrastructure layer in action-using compute power and data to manage resources with unprecedented efficiency.

The bottom line is that Deere is positioning itself as the essential platform for this next agricultural paradigm. Its investment in AI and precision tech isn't a side project; it's the core of its future growth. As the industry moves from mechanization to intelligent automation, the company that owns the foundational software and hardware stack for that new S-curve will capture the most value.

Financial Reality: Decoupling Growth from the Cycle

The market's reaction to Deere's latest report was a classic case of short-term noise drowning out a long-term signal. The stock fell after the company issued a weak 2026 outlook, but the real story is one of decoupling. The forecast for net income between $4.00 billion and $4.75 billion signals that the large ag cycle is likely at a bottom, a cyclical trough. Yet this broad forecast masks a powerful, accelerating trend within the business: the AI infrastructure build-out is gaining its own momentum.

Look past the headline numbers. The company's core growth engine is shifting. In the latest quarter, the Production & Precision Agriculture division posted a sales gain of 10%. That's a critical data point. While the overall large ag sector faces persistent challenges, this segment is scaling independently. It's the digital layer-autonomous guidance, precision spraying, data analytics-decoupling from the traditional cycle of tractor and combine sales. This is the exponential adoption curve in action, where software and intelligence drive growth even as hardware demand softens.

Of course, the financial reality includes pressure. Margins are being squeezed by ongoing margin pressures from tariffs and persistent challenges in the large ag sector. The division's operating profit actually fell last quarter despite the sales growth, a reminder that scaling a new technology stack involves upfront costs and integration friction. But the focus here is on the trajectory, not the current margin. The company is investing to build the rails for the next paradigm, knowing that profitability will follow as adoption accelerates and economies of scale kick in.

The bottom line is that Deere is navigating a transition. The 2026 outlook reflects the cyclical downturn, but the 10% growth in its AI-enabled segment shows the new paradigm is already building. For an investor, the key is to separate the noise of the cycle from the signal of the S-curve. The financials may look subdued for now, but the infrastructure for exponential growth is being laid.

The Exponential Bet: Valuation and Catalysts

The market's verdict on Deere's AI infrastructure bet is clear in the numbers. While the company posted a strong fourth quarter, the stock has gained only about 13% so far in 2025, lagging the broader market. This underperformance is the valuation signal: investors are pricing in the cyclical downturn, not the exponential adoption curve. The weak 2026 outlook for net income, which suggests the large ag cycle is at a bottom, is being treated as the primary story. For a deep tech strategist, that's a classic setup. The market is discounting the future growth layer because the present cycle is tough.

The primary catalyst to change that narrative is the acceleration of AI adoption beyond its current projected 60% penetration. By 2025, over 60% of large farms worldwide are projected to adopt AI-powered precision agriculture technologies. That's the inflection point. Once adoption crosses a critical mass, it triggers a new growth S-curve for the entire sector. This isn't just incremental improvement; it's a paradigm shift where software-defined intelligence becomes the dominant factor in farm profitability and sustainability. The market will re-rate Deere when it sees this adoption accelerating, not plateauing.

Key watchpoints will be execution on two fronts. First, interoperability. The smart sprayer and autonomous tractor are powerful, but their value multiplies when they seamlessly share data with soil sensors, weather platforms, and yield monitors. Deere's ability to build or control an open, standards-based ecosystem will determine how quickly the AI layer gets embedded across the farm. Second, the company must manage the high upfront costs of adoption for farmers. The Agri-TaaS model, where farmers pay for technology as a service, is one path to lowering the barrier. Agriculture Technology-as-a-Service (Agri-TaaS) makes advanced agricultural technologies readily accessible without large capital outlays. Success here will dictate the speed of the adoption curve.

The bottom line is that Deere is a long-duration bet on a technological S-curve. The current valuation reflects the cyclical trough, but the catalysts are all about the future adoption rate. The stock's lagging performance is the opportunity. When AI adoption accelerates beyond 60%, it could trigger a re-rating that decouples the stock from the cycle and captures the exponential value of the infrastructure layer.