Caterpillar backlog hits $63bn as AI rally stretches valuation

Caterpillar reported a 22% increase in first-quarter 2026 revenue, alongside a 30% jump in adjusted earnings. The industrial manufacturer's backlog surged 79% year-over-year to a record $63 billion, an increase of $28 billion from the prior year. This massive order book provides the company with exceptional visibility for future revenue.

The primary driver of this unprecedented demand is the artificial intelligence build-out. Although Caterpillar is not a technology company, its power systems are solving a critical bottleneck for AI data centers. As securing grid connections becomes increasingly difficult and states push back against rising electricity prices, Caterpillar's equipment is used both to construct data centers and to supply them with off-grid power.

Wall Street has aggressively capitalized on this narrative. Over the past five years, Caterpillar shares have surged 330%, vastly outperforming the S&P 500, which gained roughly 70% over the same period. While existing shareholders have been richly rewarded, prospective buyers now face a heavily inflated valuation.

The stock currently trades at a 6x price-to-sales ratio, more than double its five-year average of 2.6x. The price-to-earnings ratio has expanded to 45x, sharply higher than its 19x historical average. Similarly, the price-to-book ratio stands at 22.5x, a steep premium to its 8x average.

These stretched multiples have effectively nullified Caterpillar's traditional appeal as a reliable dividend stock. Although the company has increased its payout regularly for decades, the yield has compressed to just 0.7%. This is notably lower than the 1% yield offered by the broader S&P 500 index.

Caterpillar's operational performance and record backlog are highly impressive. However, the current share price leaves virtually no margin of safety, pricing the industrial stalwart at levels typically reserved for high-growth technology firms.