Name: Caterpillar becomes the Dow’s best performer this year
Uploaded: 2025-12-30T17:37:52.810Z
Duration: 3 min 52 s
Description: Tami Zakaria, head of construction equity research at JPMorgan, joins ‘Money Movers’ to discuss Caterpillar as the industrial giant becomes the best-performing stock in the Dow this year.

Tami Zakaria, head of construction equity research at JPMorgan, joins ‘Money Movers’ to discuss Caterpillar as the industrial giant becomes the best-performing stock in the Dow this year.

Caterpillar has achieved the status of the Dow's best-performing stock in 2025, attributed to its transformation from a cyclical construction stock to a diversified multi-industry company. Its exposure to sectors such as data centers, mining, and construction has reduced earnings volatility and led to a premium valuation.

J.P. Morgan analysts project that Caterpillar's earnings will benefit significantly from the ongoing demand for data center power solutions, estimating up to $10 EPS over the next three years solely from this segment. The company is also expanding its reciprocating engine and turbine capacity, aiming for 50 gigawatts by 2030, signaling continued growth opportunities.

Caterpillar becomes the Dow’s best performer this year

Let's bring in Tami Zakaria, Executive Director and Head of Machinery, Engineering and Construction Research at J.P. Morgan. Who would have thought machinery, engineering and construction was the sexiest stock of 2025? Why do you think Caterpillar gained so much? First of all, thank you for having me. We did think about it and Caterpillar was one of our top picks for this year. And what you're really seeing is a change in narrative for Caterpillar. Historically, if you look at Caterpillar, it used to be a bellwether cyclical stock, which investors would only invest in at the start of a construction upcycle. What we've seen more recently is basically Caterpillar turning into a multi-industry company with end market exposure to data centers, to construction, to mining. And what that has done is it has reduced the earnings and sales volatility, which investors usually value, which leads a stock to have a premium valuation versus the market, which you're currently seeing right now. And we expect that to continue. And that's why we think it's still one of our top picks. I mean, so it was a good call. I guess the question is, does it continue when the market focuses on, goes beyond the build out of the data centers into more of the application phase? Absolutely. So if you think about Caterpillar's exposure to AI, it's not just the build out. First of all, you need the data center campuses, right? So you build a structure, you power them, but then you need continuous power to keep it running and it needs to be fail safe. So you need prime power, you need backup power and everything else that comes with it. Now for prime power, we all know that there's not enough electricity in the grid. So do you wait that long for the grid to be ready for all this power need? So what companies and hyperscalers are doing right now is they're essentially going for distributed power, meaning you make an island capacity and you basically run the campus without connecting it to the grid. And for that, you need reciprocating engines, you need turbines and Caterpillar has all those products. So you will, beyond the initial build out phase, you will need power to keep them running and you will need services and maintenance for the upkeep. And so we think it's a multi-year and multi-decade trend. All right. So speaking of power, what is the ultimate earnings power of all this power generation then for Caterpillar? We think it's significant. Three months ago, we did write extensively about it. We did a TAM analysis for them and we found that in a very conservative estimate, Caterpillar could earn about $10 of EPS over the next three years just from supplying power to data centers. This does not include any benefit to the construction portfolio because you're building all those structures. It does not include any oil and gas revenue lift because all these oil and gas companies will have to pump and explore, produce more gas to run natural gas turbines. So we calculated $10, but we see a massive upside to that. Wow. And what about capacity? Are they constrained at all? Well, if you have been listening to them, they did host an analyst day in November and they laid out plans for capacity expansion. They've said reciprocating engine capacity are more than doubling and latest is turbine capacity more than doubling. And to put it in perspective, by 2030, they're saying they will have about 50 gigawatts of power capacity, which is more than half of what they, more than two times of what they had end of last year. So huge capacity expansions underway. All right. So it's not too late, says Tammy. Thank you for joining us. Tammy Zakaria from J.P. Morgan.

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