The reason why Caterpillar stock is priced to perfection — and beat Nvidia in 2025

The company known for its distinctive yellow construction equipment and distinctive logo has become an artificial intelligence darling.

Yes, we mean Caterpillar (CAT) — which until Monday’s close was the best-performing stock in the Dow Jones, ahead of companies like Nvidia (NVDA) and Microsoft (MSFT), thanks to its AI-driven transformation.

Caterpillar recently saw stalled earnings growth in 2025, with its last two quarterly reports missing expectations. However, its shares are up more than 45% year to date, more than the Industrial Sector SPDR Fund’s (XLI) gains of 18%, the S&P’s 17%, and Nvidia’s 38%. When Caterpillar reports third-quarter pre-market earnings tomorrow morning, investors will likely focus on the main driver of its future growth: growing demand for electricity in data centers.

This trend shifts the spotlight to Caterpillar’s energy and transportation segment from its construction and resources sectors, which have been challenged. The latter — bulldozers, excavators and mining trucks — will “take a back seat” as the former — backup and primary powertrains, solar turbines and gas pipelines — will drive earnings in the coming years, according to BofA Global Research analysts, who have a “buy” rating on the stock.

The E&T segment represents nearly 40% of Caterpillar’s sales, according to Bank of America. Bank of America wrote in June that companies within the sector, including its power generation business, “continue to outperform the overall business.” Last year, E&T contributed about $29 billion of the company’s roughly $65 billion in sales, more than its construction and resources units.

Can the stock continue to rise? Caterpillar shares, sitting near all-time highs, are “priced perfectly,” Morgan Stanley analyst Angel Castillo said recently. Wall Street analysts, on average, expect the target price to be around $497, 6% below Monday’s close of $527.

More evidence of oversupply in the construction market and the company’s cautious views on non-residential construction activity will put pressure on the construction sector, Castillo said. Without strength in other sectors to offset this weakness, there is a risk of negative earnings revisions, he said.

However, the growth in technology and technology can be a powerful mood booster. “Any amount of sequential growth is enough to keep sentiment positive,” he wrote in a report last week. The company has a Bearish rating on the stock.