Quick Read
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Caterpillar beat Q3 with 30% power generation growth, but a moderate Q4 outlook punished a stock trading at 25x forward earnings.
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Generac surged 4% while Deere barely moved, isolating Caterpillar's selloff as a valuation problem, not a data center demand collapse.
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Caterpillar( NYSE:CAT ) stock was priced for a raise, but traders don't always get what they expect. Booming data center power sales and an earnings beat couldn't rescue Caterpillar as the company offered only a moderate outlook. Caterpillar stock is at $661 in morning trading, down 7%.
Elsewhere in the machinery sector, Deere( NYSE:DE ) stock is at $644, up 0.46%. PACCAR( NASDAQ:PCAR ) stock is at $102, down 0.61%.
Caterpillar Beats Estimates but Guides to Moderate Growth
Caterpillar reported Q3 2026 adjusted earnings of $7.20 per share on October 29, topping the $7.03 consensus of Wall Street analysts. Revenue at Caterpillar rose 17% to $20.68 billion, in line with the $20.69 billion consensus of Wall Street analysts.
Power and energy sales at Caterpillar rose 18%, while power generation sales jumped 30% on turbines, related services and large reciprocating engines used mainly in data centers. Chairman and CEO Joe Creed noted that the company is "now taking some large reciprocating orders as far out as 2029 and turbine orders into 2030."
Construction industries sales at Caterpillar gained 18%, and resource industries sales grew 15%. Margins expanded as well, with Caterpillar's operating margin reaching 20.4% from 17.3%, though operating profit included $128 million in tariff recoveries. In the company's release, Creed stated, "Our third-quarter results reflect the durability of our end markets, with strong order rates and a record backlog."
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Caterpillar expects "moderate sales growth versus the prior year," for the fourth quarter. Chief Financial Officer Kyle Epley said the consensus of Wall Street analysts called for fourth-quarter revenue of $21.42 billion. On top of that, Caterpillar had already indicated a fourth-quarter dealer inventory reduction of more than $1 billion. Creed spoke further. He added, "We haven't really changed our view for what we plan to do in the fourth quarter." Results from megacap tech companies this week also renewed worries about the pace of artificial intelligence (AI) data center spending, weighing on AI-linked industrials such as Caterpillar.
Caterpillar Moves Apart From Its Machinery Peers
Caterpillar stock is still up 16% year to date (YTD) despite the drop. The valuation set up the correction, since Caterpillar traded at 25x forward earnings at the prior close, well above its five-year average of 19x. A stock priced that high leaves little room for a merely moderate quarter.
Deere, up 39% YTD, and PACCAR, down 6% YTD, are barely moving. Farm machinery drives much of Deere's business, while PACCAR builds Kenworth, Peterbilt and DAF trucks tied to the freight cycle. Both companies sit largely outside the data center power trade. Caterpillar's mix blends construction and mining equipment with turbines and engines that keep data centers running, which ties the stock more closely to AI spending sentiment. That leaves Deere well ahead of Caterpillar for the year, while PACCAR trails both.
Among power-equipment makers, Cummins( NYSE:CMI ) stock is at $520, down 2%. So far this year, Cummins has gained 3%, trailing Caterpillar. Cummins makes engines and power generation equipment, which makes it a close business match for Caterpillar's power unit.
Generac Holdings( NYSE:GNRC ) stock is at $210, up 4%. Shares of Generac are up 54% YTD, the strongest showing in the group. With Generac rising, Caterpillar's selloff looks tied to its own valuation and outlook, while data center power demand across the sector appears intact.
Caterpillar's First 2027 Outlook Is the Next Big Test
Caterpillar's next test is whether its first look at 2027, expected with its fourth-quarter results, shows power generation growth strong enough to support the stock's premium. Capacity sets the pace there, and Caterpillar management asserted there's "no slack in the system" as production ramps. A second test for Caterpillar is whether the fourth-quarter dealer destocking passes as planned. Creed noted the company still expects to finish the year with more construction dealer inventory than a year earlier, ahead of expected strong 2027 demand.
The bulls point to Caterpillar's record $78 billion backlog and the $1.9 billion the company returned to shareholders, including $1.2 billion in buybacks and $700 million in dividends at Caterpillar. But Caterpillar's premium multiple leaves room for further disappointment if AI spending cools or tariff and freight costs keep pressuring margins.
The data center expansion still needs power, cooling and turbines from somebody, and we rounded up seven suppliers behind the AI boom (chipmakers excluded) in a free report here. Investors could keep researching Caterpillar's power generation capacity and dealer inventory trends as the debate over its 2027 outlook plays out.
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