This advertisement has not loaded yet, but your article continues below. Breadcrumb Trail Links This advertisement has not loaded yet, but your article continues below. Article content Caterpillar does not break out results for the power generation business that it calls Solar Turbines, making it somewhat difficult for investors to assess. Bank of America analysts think the unit is “CAT’s highest margin product with a robust growth outlook.” Article content “CAT is predominantly known for construction and mining equipment, yet power is likely to be the driver of the next EPS upcycle and is least understood by investors,” analyst Michael Feniger wrote in a note. Article content Wall Street is watching to see whether margins suffer as the company deals with higher costs, Owen said. Inflation in other corners of the market may also pressure Caterpillar’s customers, she said. Article content The stock currently trades above Wall Street’s average price target, suggesting it’ll be hard to move higher from here. It’s valued at 23 times forward earnings, the highest valuation since 2021. Article content At the same time, that valuation looks like a discount compared to other companies seen as winners from AI power demand. For BofA’s Feniger, that’s a sign there’s upside to be had. Article content Among power-equipment companies, Vertiv Holdings Co. trades at 36 times earnings after its stock rallied more than 40% this year. GE Vernova Inc. commands a 53-times multiple after shares nearly doubled. Caterpillar also trades at a discount compared to some of the biggest AI players, such as Microsoft Corp. and Nvidia Corp. Article content The Wednesday trading debut of real estate investment trust Fermi Inc. suggested investors’ appetite for AI bets hasn’t waned yet. The Texas-based company, which has plans to build a huge energy and data-center campus, saw shares jump 55% in their first session. Article content “So much of the market is being driven by animal spirits as it relates to AI and data centers that stocks like Caterpillar can certainly be caught up in that positive feedback loop,” Sponheimer said. Article content