Caterpillar: AI-Driven Power Demand Supports Fundamentals, but Valuation Keeps Rating at Hold

Raymond James analyst Timothy Thein has maintained their neutral stance on CAT stock, giving a Hold rating on January 5.

Timothy Thein has given his Hold rating due to a combination of factors related to both strong demand trends and a more balanced risk‑reward profile for the stock. He notes that Caterpillar is seeing exceptional, AI- and data-center-driven demand for large gas and diesel engines, with lead times stretching significantly and some high-speed gas engines now effectively sold out for roughly two years. This surge is reinforced by a global buildout of data centers, larger project sizes, and growing opportunities across key dealer territories such as Canada, all of which support a robust near- to medium-term revenue backdrop for Caterpillar’s power systems business. At the same time, Thein flags that this intense race for power is pushing some developers into less ideal, higher-risk generation solutions, raising questions about the durability and quality of some demand and the potential for project-level disappointments later on.

The Hold stance reflects Thein’s view that while fundamentals tied to data center and AI power demand are highly supportive and could remain strong for several years, much of this optimism is already reflected in Caterpillar’s valuation. The company’s extended order book and strong backlog argue for solid earnings visibility, but also limit the scope for upside surprise if growth normalizes or certain speculative projects fail to materialize. Additionally, he implies that the cyclical nature of capital goods, combined with uncertainty around how long current AI-related investment intensity can be sustained, makes it difficult to justify a more aggressive rating at present levels. In sum, he sees Caterpillar well positioned operationally, but believes the stock’s current pricing appropriately balances upside potential against these emerging risks, leading him to maintain a Hold recommendation.

According to TipRanks, Thein is a 5-star analyst with an average return of 17.9% and a 63.64% success rate. Thein covers the Industrials sector, focusing on stocks such as Caterpillar, CNH Industrial, and Cummins.

In another report released on January 5, RBC Capital also maintained a Hold rating on the stock with a $587.00 price target.