Data centers need power, so why did this Dow stock fall 26%? RSS CTA

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The global artificial intelligence buildout is funneling billions of dollars into power infrastructure, yet broad industrial tariff and growth anxieties continue to punish cyclical manufacturing names. While agricultural machinery peer Deere & Company (NYSE:DE) grapples with a prolonged farm equipment downturn, heavy equipment titan Caterpillar (NYSE:CAT) tumbled 26.0% over the past month to $623.94.

Yet a closer look at what the company actually reported reveals a profound disconnect between headline market sentiment and operational execution. Rather than a business facing structural decline, the sell-off left an essential infrastructure provider trading at a deep discount to its long-term earnings power. That valuation gap prompted InvestingPro’s ProPicks AI models to add the stock to the Dominate the Dow strategy during the live November 1 rebalance. The freshly updated portfolio pairs Caterpillar with an elite basket of resilient blue chips—including a commercial-stage oncology biopharma pioneer, a global pharmaceutical leader, and a high-yielding national telecom provider.

Powering the Data Center Buildout

Caterpillar makes construction, mining and power equipment, and the growth is in power. Power Generation sales jumped 75% in the third quarter as data center operators ordered multi-megawatt power generation equipment, lifting Power & Energy segment sales 18% to $8.8 billion and segment profit 31% to $2.1 billion.

The order book backs that up. Backlog reached a record $78.1 billion, up 96% from a year earlier, with large power-generation orders running into 2029 and turbine orders into 2030. About 58% of the backlog is expected to convert to sales within 12 months, and Caterpillar is targeting nearly triple its 2024 large power-generation capacity by 2030, backed by a $1 billion investment in Sanford, North Carolina. Third-quarter sales hit a record $20.7 billion, up 17%, and adjusted EPS of $7.20 rose 45%. Construction Industries posted its seventh straight quarter of growth in sales to users, and past dues at Cat Financial fell to 1.31%, the lowest since 1998.

Shares dropped after the October 29 report as investors focused on a cautious fourth-quarter outlook, roughly $2.2 billion of full-year tariff costs and capacity limits in Power & Energy, where management said there is no slack in the system. Record backlog and 75% Power Generation growth suggest demand is intact.

Cash Returns Behind the Reset

Fundamentals back that reading. InvestingPro’s Financial Health framework, which benchmarks companies against sector peers across more than 100 indicators, gives Caterpillar a profitability rating of 8 out of 10, and the reported adjusted operating margin of 20.6% rose 310 basis points from a year earlier. The company also generates a strong double-digit return on invested capital.

Earnings estimates point the same way. According to consensus analyst projections compiled on InvestingPro, forward EPS growth is 46.7%, and analysts revised earnings estimates up 17 times and down twice over the past 90 days. Several brokers trimmed price targets after earnings, citing worries over the durability of AI spending, yet Oppenheimer reiterated its Outperform rating with a $1,009 target.

Caterpillar also returns cash to shareholders. The stock yields 1.0% ($6.52 a share annualized) after 13 straight years of dividend increases, and $2 billion went back to investors through buybacks and dividends in the third quarter alone. Trading remains heavy, averaging $2.16 billion a day. Tariffs, a full-year margin near the bottom of management’s target range and capacity limits all weigh on near-term growth.

The Caterpillar Pro Research Report lays out segment margins, data center power demand and backlog trends in full.

Finding Quality After a Sharp Sell-Off

Caterpillar’s 26% decline reflects near-term operational friction—tariff expenses and factory capacity constraints—rather than a collapse in customer demand. A $78.1 billion backlog and a 75% surge in power generation sales confirm that the industrial giant has become an essential physical enabler of the artificial intelligence boom, providing the heavy-duty generation equipment data centers need to stay online.

Recognizing when an indiscriminate sector sell-off creates a valuation disconnect is central to disciplined investing. With the November rebalance now live, ProPicks AI’s Dominate the Dow strategy added Caterpillar alongside resilient blue-chip leaders across commercial oncology, global pharmaceuticals, and national telecom infrastructure.

For investors seeking high-conviction ideas in the newly updated portfolios, full access to all ProPicks AI strategies costs just $9 a month.

The author holds no position in the stocks mentioned. Data and financial metrics as of November 4, 2026.