UBS: Caterpillar, Cummins and Quanta Services could gain as data-center spending grows into 2027

what happened

Seeking Alpha reports that UBS expects demand for AI infrastructure to pick up in 2027, which should help industrial equipment makers and engineering firms as data center operators add capacity, even though supply chains remain strained. In an October 16 note, analyst Steven Fisher, citing attendees at the Data Center World Expo in Singapore, described rising orders, longer multiyear capacity bookings and confidence that AI spending will continue past 2027.

UBS names Caterpillar, Cummins and Quanta Services as likely winners. Caterpillar and Cummins could benefit from demand for power generation gear, while Quanta is tied to grid investment. Caterpillar told the bank's analysts that orders for energy equipment remain very high and that the company is widening its output. The report also notes growing interest in generating power on site, but UBS thinks most projects through 2028 or 2029 will stay connected to the grid with diesel backup.

The bank estimates that data centers directly account for about $63 billion, roughly 5%, of the $1.3 trillion U.S. nonresidential construction market. Including indirect spending, their share of sector activity rises to 20% to 30%. UBS warns, however, that inflation and higher rates tied to the Iran conflict could lift costs for fuel and materials, a pressure likely to show up in fourth-quarter results. Caterpillar's Power & Energy margins beat second-quarter expectations, but are expected to ease. Risks include cheaper computing, wider use of smaller AI models and doubts about the financial strength of newer cloud providers after a selloff in CoreWeave bonds.

why it matters

For markets, the note suggests AI-related capital spending still supports industrial earnings even as the broader economy softens. The outlook, however, depends on backlog growth, input costs and exposure to cloud customers, which suppliers rarely disclose in detail.

market impact

Caterpillar, Cummins, Quanta: data-center orders support demand, while rising input costs pressure margins

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