Caterpillar shares may still have room to climb, according to Wells Fargo, which initiated coverage of the industrial giant with an overweight rating and a bullish view on the company’s emerging role in artificial intelligence-related infrastructure.
Analyst Jerry Revich set a price target of $675, implying potential upside of about 22% from Caterpillar’s closing level on Thursday.
The call comes as the stock has already surged 52% year-to-date, significantly outperforming the broader market and lifting expectations around the durability of its rally.
On Friday, however, the stock fell 1.19% in premarket trading.
Turbine demand tied to AI infrastructure gains traction
Revich’s optimistic stance is rooted in Caterpillar’s positioning within a fast-evolving trend: hyperscale data center operators expanding and diversifying their reliance on power generation.
He noted that turbines are increasingly emerging as a solution for companies seeking to reduce dependence on traditional utility grids, an area where Caterpillar has meaningful exposure.
The analyst pointed to project permits from xAI, Stargate, and Meta over the past year as evidence of growing momentum behind turbine installations as part of data center infrastructure.
That momentum, he argued, reinforces Caterpillar’s potential to benefit as artificial intelligence growth drives massive energy needs for next-generation compute workloads.
“CAT is positioned to benefit from hyperscalers diversifying their grid reliance to turbines,” Revich wrote, emphasizing how the combination of AI demand and alternative power solutions could support Caterpillar’s long-term growth trajectory.
Inventory tightness signals strength in construction cycle
Beyond data center power trends, Wells Fargo also highlighted improvements in Caterpillar’s core construction equipment business.
According to Revich, the US construction equipment cycle is shifting from a period of destocking to a phase of production recovery—a development that is typically supportive for equipment makers.
Machine inventories in North America have fallen 10% from a year ago, indicating that current deliveries are running below market demand.
Revich added that inventories of used equipment, which often serve as a leading indicator of equipment values and Caterpillar’s stock performance, have also tightened. “Used equipment inventories typically lead values & ultimately CAT stock,” he wrote.
That tightening, he said, could translate into firmer pricing for both used and new machinery in the coming quarters.
With used inventories constrained and new-equipment inventories now back in line with historical averages, Revich expects valuations for used machinery to improve.
This dynamic could offer Caterpillar a tailwind on pricing—a pattern observed in previous cycles when similar inventory conditions aligned.
Analysts remain divided despite strong share performance
Even with its significant year-to-date rally and improving industry fundamentals, Caterpillar continues to divide Wall Street.
Of the 28 analysts covering the stock, half rate it a buy or strong buy, while the other half recommend holding or underperforming the shares, according to LSEG data.
This split reflects ongoing questions about how much upside remains after the stock’s steep ascent.
Still, Wells Fargo’s view suggests the industrial bellwether could continue outperforming, supported by strengthening demand trends and emerging AI-related opportunities in energy and infrastructure.
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