Power Generation and the BacklogNarrow moat

Caterpillar (CAT) — moat facet

Caterpillar's power business is sold out into 2028, and the question is whether the capacity it is building will meet a franchise or a peak.

Caterpillar's second moat is the one the market is currently paying for: engines, generator sets and turbines, made at scale by a company that already had the engineering and the dealers to service them. Power & Energy was Caterpillar's largest segment in 2025, with $32,201 million of total sales and segment profit of $6,418 million1.

Power & Energy segment profit ($M)4,93620235,73620246,4182025Caterpillar Form 10-K FY2025, Rail inside Power & Energy
Profit up 30% in two years.

What changed is demand. Power generation sales were $3,963 million in 20202 and $10,275 million in 20253. In the second quarter of 2026 Power & Energy's segment profit margin was 24.6%4, and the firm order backlog of the whole company reached about $72.1 billion, with the largest increase in Power & Energy5.

The moat here is manufacturing scale plus the service network. A data centre buying hundreds of generator sets wants a supplier that can build them, install them through a dealer and keep them running for decades. Caterpillar has all three, and its Perkins and FG Wilson brands add distributor networks of 86 and 108 distributors respectively6.

It is narrower than the dealer moat because it depends on a boom and on capacity. Lead times for gas engines and turbines run into late 20287, and rivals named in the annual report, including Cummins, Rolls-Royce Power Systems, Siemens Energy and GE Vernova8, are competing for the same orders.

The power business also reaches far beyond data centres. Power & Energy supports customers in oil and gas, power generation, marine, rail and industrial applications, with reciprocating engines, generator sets, integrated systems and solutions, turbines and turbine-related services9. Oil and gas alone had $7,502 million of external sales in 202510, so the segment has a second leg if the data-centre wave slows.

The company is converting existing plants to get there faster. It repurposed a 250,000 square foot Wamego, Kansas facility in under 12 months, substantially less than building a new factory would take, to package and ship its PGM130 power modules11.

The facet is narrow but widening. Its test is Power & Energy's margin as capacity grows: if the segment keeps its margin above 20% while volumes rise toward the target of more than doubling power generation sales by 203012, the boom is building a durable franchise; a margin that falls as capacity arrives would mean Caterpillar built for a peak.

Moat trajectory: Widening

Power generation $10.3bn in 2025; backlog $72.1bn; P&E margin 24.6% in Q2 2026.

The number that tests this moat
Reported
Power & Energy segment margin, latest quarter
24.6% (Q2 2026) against 22.1% a year earlier

Whether scale is building a franchise; a margin falling as capacity arrives would mean Caterpillar built for a peak.

Source: Caterpillar Q2 2026 results release ↗
Aspects of the moat
DIG DEEPER 01
Power Generation: $4.0 Billion to $10.3 Billion
Caterpillar sold $10.3 billion of power generation equipment in 2025, 2.6 times 2020, because data centres need electricity faster than grids can…
DIG DEEPER 02
A $72 Billion Backlog
Caterpillar's firm order backlog grew from $30 billion to $72 billion in eighteen months, and $29 billion of it will not ship for more than a year.
DIG DEEPER 03
Lead Times Into 2028
Caterpillar's gas engines and turbines are sold out into late 2028, which gives it pricing power and gives its rivals the customers who cannot wait.
DIG DEEPER 04
Solar Turbines and the Oil and Gas Book
Caterpillar's oil and gas business doubled from 2020 to 2025, and the turbines that serve it can also power data centres.
⚠ Threats to the moat
⚠ THREAT 01
The Gigawatt Orders Are Few and Large
Caterpillar's power backlog increasingly rests on a few multi-gigawatt orders, whose concentration it does not disclose.
⚠ THREAT 02
Building for a Peak
Caterpillar is tripling engine capacity for a boom whose length nobody knows, and it has written down capacity before.
References
  1. ReportedPower & Energy was Caterpillar's largest segment in 2025, with $32,201 million of total sales and segment profit of $6,418 million.
    Caterpillar Form 10-K for fiscal 2025 - financial statements and notes: profit, per-share data, cash flow, balance sheet, debt, dividends and credit risk. — FY2025 · publ. 13 February 2026 · source ↗
  2. ReportedPower generation sales were $3,963 million in 2020 and $10,275 million in 2025.
    Caterpillar Form 10-K for fiscal 2022 - segment sales and profit for 2020-2022, the dealer count, sales by application, and the $925 million Rail goodwill impairment. — FY2022 · publ. February 2023 · source ↗
  3. ReportedPower generation sales were $3,963 million in 2020 and $10,275 million in 2025.
    Caterpillar Form 10-K for fiscal 2025 - Item 1 business: history, products, Cat Financial, employees and order backlog. — FY2025 · publ. 13 February 2026 · source ↗
  4. ReportedIn the second quarter of 2026 Power & Energy's segment profit margin was 24.6%, and the firm order backlog of the whole company reached about $72.1 billion, with the largest increase in Power & Energy.
    Caterpillar second-quarter 2026 results release, Form 8-K exhibit 99.1 - segment results and Cat Financial credit. — Q2 2026 · publ. 4 August 2026 · source ↗
  5. ReportedIn the second quarter of 2026 Power & Energy's segment profit margin was 24.6%, and the firm order backlog of the whole company reached about $72.1 billion, with the largest increase in Power & Energy.
    Caterpillar Form 10-Q for the quarter ended 30 June 2026 - backlog, outlook, tariffs, dealer inventory, balance sheet and the RPMGlobal acquisition - MD&A: order backlog, dealer inventory, tariffs, IEEPA recoveries and the 2026 outlook. — Q2 2026 · publ. 5 August 2026 · source ↗
  6. ReportedCaterpillar has all three, and its Perkins and FG Wilson brands add distributor networks of 86 and 108 distributors respectively.
    Caterpillar Form 10-K for fiscal 2025 - Item 1 business: dealers and distributors. — FY2025 · publ. 13 February 2026 · source ↗
  7. ReportedLead times for gas engines and turbines run into late 2028, and rivals named in the annual report, including Cummins, Rolls-Royce Power Systems, Siemens Energy and GE Vernova, are competing for the same orders.
    The Motley Fool, Caterpillar Q2 2026 earnings call transcript and summary - lead times, backlog delivery, rental demand, Wamego, the 10-megawatt engine restart and Skycatch. — Q2 2026 · publ. 11 August 2026 · source ↗
  8. ReportedLead times for gas engines and turbines run into late 2028, and rivals named in the annual report, including Cummins, Rolls-Royce Power Systems, Siemens Energy and GE Vernova, are competing for the same orders.
    Caterpillar Form 10-K for fiscal 2025 - Item 1 business: competitive environment by segment. — FY2025 · publ. 13 February 2026 · source ↗
  9. ReportedPower & Energy supports customers in oil and gas, power generation, marine, rail and industrial applications, with reciprocating engines, generator sets, integrated systems and solutions, turbines and turbine-related services.
    Caterpillar Form 10-K for fiscal 2025 - note on segment information: sales, profit and external sales by segment and application. — FY2025 · publ. 13 February 2026 · source ↗
  10. ReportedOil and gas alone had $7,502 million of external sales in 2025, so the segment has a second leg if the data-centre wave slows.
    Caterpillar Form 10-K for fiscal 2025 - note on segment information: sales, profit and external sales by segment and application. — FY2025 · publ. 13 February 2026 · source ↗
  11. ReportedIt repurposed a 250,000 square foot Wamego, Kansas facility in under 12 months, substantially less than building a new factory would take, to package and ship its PGM130 power modules.
    The Motley Fool, Caterpillar Q2 2026 earnings call transcript and summary - lead times, backlog delivery, rental demand, Wamego, the 10-megawatt engine restart and Skycatch. — Q2 2026 · publ. 11 August 2026 · source ↗
  12. ReportedIts test is Power & Energy's margin as capacity grows: if the segment keeps its margin above 20% while volumes rise toward the target of more than doubling power generation sales by 2030, the boom is building a durable franchise; a margin that falls as capacity arrives would mean Caterpillar built for a peak.
    Caterpillar fourth-quarter 2025 earnings call transcript (company PDF) - services revenues, tariff headwinds, power generation, autonomous trucks and the AIP order. — Q4 2025 · publ. 29 January 2026 · source ↗
Sources
Generated September 25, 2026