As the largest construction equipment manufacturer, Caterpillar (NYSE: CAT) is quite literally a purveyor of picks and shovels. Well, the costly kind. The company’s large and extra-large excavators can cost between $500,000 and $1.2 million each.
Even at the low end, that’s more than the median home price in the U.S. Yet even at those price points, Caterpillar has a receptive audience among data center builders, leveraging the industrial stock to the artificial intelligence (AI) trade. Those ties are a big reason why the stock is up 124% over the past year and is now the second-largest member of the price-weighted Dow Jones Industrial Average.
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At this point, Caterpillar’s AI ties are well documented and were a big reason the company posted record revenue in the fourth quarter, and is sitting on a $51 billion order backlog. So it’s reasonable for investors to ponder if this industrial stock can keep rolling this year and beyond. It can and, importantly, there may be contributions from outside the data center space.
While data centers add glamour to the Caterpillar investment thesis, the company’s exposure to the commodities mining sector remains a source of allure. There’s a data center tie-in there, too, because copper is essential in wiring those facilities, and copper miners need the equipment produced by Caterpillar.
Fortunately, there’s more than just AI underpinning global commodities demand. Industrial metals and rare-earth minerals are critical in the production of a variety of clean energy products, including solar panels and wind turbines. As more countries adopt carbon-reducing policies, miners are incentivized to extract related materials from the earth, which means they need the gear manufactured by Caterpillar.
The industrial company is showing that mining remains a vital part of its long-term growth story. On Feb. 17, Caterpillar announced the acquisition of RPMGlobal, a move aimed at bolstering Caterpillar’s mining software and technology stacks.
Don’t forget gold mining. The yellow metal is on a blistering pace, and those higher prices could compel miners to increase activity. Through a partnership with Newmont, Caterpillar has some exposure to that theme. Importantly, gold miners have strong balance sheets, suggesting they can afford Caterpillar’s pricey equipment.
