Caterpillar's backlog signals the AI boom is far from over

Caterpillar (CAT) stock has held onto gains over 6% on Tuesday after reporting a blockbuster second quarter in the premarket. Caterpillar's adjusted earnings per share (EPS) of $8.17 skyrocketed 73% YoY, and revenue of $20.5 billion rose more than 23%.

But the major catalyst for the share price's uplift came from the backlog. Caterpillar said that for the April-to-June quarter, it booked orders worth $9.4 billion, taking its order backlog to $72.1 billion. This positive news helped usher in a rally for Sandisk (SNDK) and Micron (MU), two memory chip suppliers that also benefit from the continued boom in AI spending.

"This is the first time in company history that we have generated over $20 billion in sales and revenues in a single quarter," said Caterpillar Chairman and CEO Joe Creed. "Strong order rates and a growing backlog reflect broadening momentum across all three of our primary segments."

Caterpillar's backlog is growing due to the broad AI data center buildout requiring the purchase of construction vehicles and equipment, as well as backup power generation turbines.

Q2 highlights

The Construction Industries segment posted a 35% increase in sales, while Resource Industries revenue rose 20%. The Power & Energy business generated 17% sales growth, led by demand for engines and turbines that offer backup power for AI data centers.

The operating profit in Q2 increased 50% to $4.3 billion, and the operating margin expanded to 20.9% from 17.3% a year earlier.

Caterpillar saw growth in all geographical regions. The North American segment saw the highest growth at 37% YoY, while Europe, Africa and the Middle East grew 14%. Latin America saw growth of 10% YoY, while Asia grew the slowest at 4%.

Caterpillar deployed $1.5 billion of cash for share repurchases and about $700 million for dividends in the second quarter.

Caterpillar stock chart

Caterpillar gapped up on the Q2 earnings news on Tuesday, but it couldn't sustain the 12% rally. CAT shares are now trading midday near the prior shelf from the second-half of July in the $880s.

Bulls should be focused on a near-term reclaiming of the 50-day Simple Moving Average (SMA) near $918. By conquering that level, the market will then take aim at the all-time high from June 30 at $1,071.

Bears or those looking for an opportune entry will probably target the $840 to $853 demand zone that has acted as resistance and support since April. But with the Relative Strength Index (RSI) at 50, Tuesday's gap up might not offer a discount. Most gap ups are typically the start of upward momentum, and if the market obliges, CAT will retake the $900 psychologically-important level soon enough.