Dive Brief:

• Caterpillar generated a record $20.5 billion in sales and revenue during the second quarter, driven by higher demand for power generators and other industrial equipment.
• The record quarter comes amid growing concern about the longevity of data center buildouts driven by artificial intelligence demand. Chip stocks sold off sharply last week, underscoring investor anxiety around AI spending and whether returns can justify the lofty share prices.
• During Caterpillar’s earnings call Tuesday, CEO and Chairman Joseph Creed addressed AI demand concerns, saying there are constant customer discussions, but “no one is slowing down at the moment.” 

Dive Insight:

Power generation retail sales by the Texas-based company grew 72% over last year during the quarter, according to Caterpillar’s earnings presentation. This was due to “very strong demand for large gen[erator] sets and turbines used in data center applications,” Creed said.

Power and energy customers are placing orders with Caterpillar through 2030, with about 59% of the company’s $72 billion order backlog expected to be delivered over the next 12 months, Creed said. In addition to hyperscalers, customers in the oil and gas, mining and marine segments are also making large engine and turbine purchases.

To meet growing demand, Creed said Caterpillar is resuming production of its 10-megawatt medium-speed gas reciprocating engine platform. The company stopped manufacturing the product in 2022, due to “limited industry opportunity,” he said. Caterpillar plans to bring back 1.5 gigawatts of capacity with shipments to begin in the fourth quarter.

Caterpillar’s power and energy segment sales totaled $8.2 billion in the second quarter, up 17% from last year. Segment profit increased 30% to $2 billion over the same period.

In the construction segment, sales totaled $8.3 billion, up 35% from a year ago. Caterpillar attributed this growth to higher-than-expected demand in North America, where regional sales surged 50% to nearly $5.1 billion compared to last year. Segment profit increased 57% to $1.9 billion over the same period.

Additionally, Caterpillar began delivering its first construction equipment to Major Projects, a rental joint venture serving customers with multibillion-dollar projects across North America. This supplements Caterpillar’s existing dealer rental services and makes it easier for large contractors to do business with the company, Creed said.

In July, Caterpillar completed its acquisition of Skycatch, a provider of AI-driven spatial data capture, processing and analysis software for the mining industry. Caterpillar’s resource industries segment, comprising mining and rail equipment, saw sales reach $4.6 billion, up 20% over last year. Segment profit reached $693 million, up 23% over the same period.

Looking ahead, the company raised its full-year guidance despite ongoing geopolitical uncertainty. Caterpillar is now tracking sales and revenue growth to be in the “mid-to-high teens” over last year. The company plans to expand capacity and increase throughput in the second half of the year, Creed said.

At the same time, the company is bracing for high tariff costs. Excluding any received or upcoming IEEPA refunds, Caterpillar is expecting tariff costs to be $2.2 billion for the year, CFO Kyle Epley said on the call.