This Industrial Giant Is Becoming an AI Powerhouse, and You Probably Had No Idea

Many investors know Caterpillar (NYSE: CAT) well. They may have grown up seeing model toys in Caterpillar's famous yellow, or even actual trucks, bulldozers, and other machinery roadside at construction projects. The industrial equipment giant is an iconic brand and a blue chip company that has raised its shareholder dividend for 33 consecutive years.

Wait, you probably clicked on this article to read about an AI stock. No, you're not mistaken. It turns out, Caterpillar is quickly becoming an AI powerhouse -- it's just not for semiconductors, software, or the other familiar reasons.

Here's why AI has become a tremendous growth catalyst for Caterpillar, and why investors should consider buying and holding the stock.

Image source: Getty Images.

Solving the data center bottleneck that many people forget about

You probably know that companies can't set up data centers fast enough these days. But fewer people are thinking deeply about a very simple problem: power.

It takes far less time to churn out GPU chips or construct buildings than it does to plan, approve, and build the infrastructure needed to power all of these data centers. I'm talking about power generation, substations, power lines, and more.

That is where Caterpillar has found a very lucrative opportunity. The company's power and energy segment sells industrial-scale generators, battery systems, switchgear, and other products that can generate and distribute power on-site while the electrical grid catches up.

The business is booming, which bodes well for the stock

Revenue in the power and energy segment grew by 23% year over year in the fourth quarter of 2025 to become Caterpillar's largest business. The strong demand helped Caterpillar end 2025 with a $51 billion order backlog, up a blistering 71% from the year before.

Soaring equipment sales will generate recurring service and maintenance revenue, and the tailwinds could persist for a long time. Management cites estimates that data center electricity requirements will rise by 200% by 2035.

Caterpillar stock has already done very well, more than doubling over the past year. Shares aren't a bargain at 31 times this year's earnings estimates, but that seems fair for the 18% annual earnings growth Wall Street analysts anticipate over the next three to five years.

Even more, the strong growth will likely translate to the dividend, which is currently just 26% of 2026 earnings estimates. Those looking for a different way to invest in the AI boom and a proven winning company with a reliable dividend that will continue to increase over time should take a close look at Caterpillar.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar. The Motley Fool has a disclosure policy.