Caterpillar Inc. (NYSE: CAT) delivered a mixed third quarter. Revenue rose 17% to $20.68 billion, narrowly missing analyst expectations of about $20.76 billion, while adjusted earnings per share climbed 45% to $7.20, ahead of estimates of about $7.06 [1].
Caterpillar shares fell 9.25% on October 29 despite an earnings beat and a record $78.1 billion order backlog, up roughly 96% year over year. Revenue narrowly missed expectations, and the company maintained its full-year sales outlook, disappointing investors after a strong rally.
The reason is expectations. Caterpillar kept its full-year outlook for mid to high teens sales growth rather than raising it, and guided to only moderate growth in the fourth quarter as dealers cut about $1.6 billion of inventory.
#The Data Center Engine Behind the Orders
Caterpillar is best known for bulldozers and mining trucks, but its fastest growing business now sells power. Data center builders are buying its large engines, generators, and turbines to keep AI servers running. Power generation sales rose 30% to $3.42 billion in the quarter [2].
That demand shows up most clearly in the backlog, the pile of orders not yet delivered [3].
The backlog has nearly doubled in a year, and management said some large gas power orders now stretch out to 2029 and 2030. That gives Caterpillar unusual visibility for an equipment maker whose fortunes usually swing with the building cycle.
Profitability improved as well. The adjusted operating margin widened to 20.6% from 17.5% a year earlier, helped by higher prices and stronger volumes. In other words, Caterpillar is not just selling more. It is earning more on each sale, even while absorbing tariff costs on imported parts and materials.
#Why a Good Quarter Was Not Enough
Even after the fall, Caterpillar trades at about 25 times expected earnings, a high price for an industrial company. At that level, a beat is assumed. Investors needed a raised forecast or a sign that factories can turn orders into sales faster.
The selloff also fits a wider mood. Other AI power names such as GE Vernova and Vertiv have seen sharp swings as investors question how long data center spending can keep compounding.
There are company specific concerns too. Tariffs are still costing Caterpillar hundreds of millions of dollars a quarter, and an earlier boost from tariff refunds is not expected to repeat. Its construction business also faces a flat fourth quarter while dealers trim stock.
The bull case is the backlog. Orders stretching years ahead give Caterpillar a cushion most industrial companies never have. The bear case is that a record order book means little if factory capacity limits how fast it becomes revenue.
The next test comes with fourth quarter results, when Caterpillar gives its first look at 2027. Investors will want proof that power generation growth can carry the stock's premium price.