Satya Nadella's Microsoft Needs Power. Joe Creed's Caterpillar Sells It.

Microsoft (NASDAQ: MSFT), under Satya Nadella, is leaning hard into artificial intelligence. It isn't alone; companies like Oracle (NYSE: ORCL), Meta (NASDAQ: META), and Alphabet (NASDAQ: GOOG) are also doing the same. The numbers are huge. Just six major tech companies have commitments of $862 billion for future AI data centers, with Nadella's Microsoft accounting for nearly 23% of the total, according to Bloomberg. This is good news for Caterpillar (NYSE: CAT).

Power is a limiting factor for AI

Artificial intelligence is just a fancy computer program. So electricity is a necessity. However, the speed of the AI infrastructure build-out has made it difficult to secure power connections for all the data centers under construction. Nadella has gotten creative, recently inking a deal with Chevron (NYSE: CVX), which will operate a natural gas power plant supplying power to a Microsoft data center.

Image source: Microsoft Corporation.

While most of the turbines for this power plant are coming from GE Vernova (NYSE: GEV), Caterpillar will also be a key supplier, too. Cat's generators can be used for backup power or as a main power source, quickly getting data centers up and running. But that's just one data center; there are many more that need power. And that makes CEO Joe Creed's Caterpillar an AI play.

Good news and bad news for Caterpillar investors

Caterpillar ended the first quarter of 2026 with a record backlog of $63 billion, up nearly 80% year over year. That basically represents future sales, so Cat's got a strong runway for growth ahead. And it is already doing quite well, with first-quarter 2026 sales up 22%. Shareholders should be very pleased.

But if you are considering buying Caterpillar right now, you need to pause for a second. The stock price has doubled in a year, even after a recent 17% drawdown. And, despite that drawdown, the stock's price-to-sales and price-to-earnings ratios are both more than twice their five-year averages. So investors are well aware of the success and opportunity here.

Don't rush to buy Cat

Caterpillar is an iconic industrial giant that is doing well right now. Given its ability to provide power to AI companies like Microsoft, the business appears to have a strong foundation for growth. But overpaying for a good company can turn it into a bad investment. If you bought Cat a year ago, you should be very pleased. If you are looking at it today, you may want to keep it on your wishlist for now.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Caterpillar, Chevron, GE Vernova, Meta Platforms, Microsoft, and Oracle. The Motley Fool has a disclosure policy.