Cummins' Fastest-Growing Business Isn't Trucks. It's Data Center Power.

Shares of Cummins (NYSE: CMI) have climbed nearly 50% over the past six months, lifted by rising orders tied to the artificial intelligence (AI) boom. The company designs and manufactures diesel and natural gas engines, power generation equipment, and related components. The stock has long been priced as a cyclical play on long-haul trucking, but now the surge in data center demand is the bigger driver.

Advanced computing relies on large facilities, and those sites need reliable standby energy when utility service fails or becomes unstable. That is where Cummins comes in. Its power systems segment sells the industrial generators they need.

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The bottleneck in AI is power

On the second-quarter 2025 earnings call, management projected around $2 billion in annual revenue for this market. By the fourth-quarter call, that annual figure nearly doubled to $3.5 billion across the power systems and distribution segments. That is a big jump in orders in a short period.

Power systems grew revenue 16% to $7.5 billion for the full year, pushing earnings before interest, taxes, depreciation, and amortization (EBITDA) margins to 22.7%, a 430-basis-point improvement from last year.

Revenue from distribution, which sells, installs, and services the equipment, grew 9% to $12.4 billion, and margins rose to 14.6% from 12.1%. Both segments are becoming more profitable as generator sales make up a larger share.

CFO Mark Smith called Cummins a "low-risk weighted play on the AI boom." The order book backs that up, with bookings stretching to 2028.

The core business should stabilize

The engine and components segments still make up nearly two-thirds of total sales. Both declined last year, with engines down 7% and components down 13%.

Heavy- and medium-duty truck sales, its key end markets, fell 13.6% last year as the North American replacement cycle cooled. Management expects full-year revenue in this part of the business to be flat to up 5% in 2026 as the market stabilizes.

Then there's the Accelera segment, where Cummins took a $458 million write-down last year. The company is pulling back from electrified power systems after a reduction in government incentives cooled demand in that market.

This weighed on the top line last year, with total revenue down 1%. Yet adjusted EBITDA still rose 9% to $5.8 billion, as margins expanded 170 basis points to 17.4%, driven by higher-margin power system sales.

At 22.5 times forward earnings, the valuation still looks reasonable for a stock tied to AI. Even if data center demand cools from here, Cummins is still a disciplined, century-old industrial company that paid $1 billion in dividends last year and raised its payout for the 16th straight year. That's why it's a stock worth owning today.

Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cummins. The Motley Fool has a disclosure policy.