The industrial giant Caterpillar (CAT.US) saw its stock extend a powerful rally fueled by artificial intelligence prospects, with its market capitalization briefly surpassing the $300 billion mark for the first time on Tuesday. The stock climbed as much as 2.4% during the session, hitting a peak of $644.59, before paring some gains to close 1.1% higher, leaving the company with a market value of approximately $298 billion. Following a 58% surge last year, the shares of the company famous for its iconic yellow construction and mining equipment have advanced another 11% year-to-date, ranking it among the top performers in the S&P 500 Industrials Index. As investors, eager to find "secondary AI concept stocks" after the massive valuation surge in major technology and semiconductor firms, turn to companies selling equipment for power generation businesses, Caterpillar has become a clear frontrunner in the market. Analyst Christopher Jollino noted that the fervor surrounding data center-driven demand for power generation equipment has helped the company "support record backlogs." He pointed out, "The power generation business is their fastest-growing segment, with above-average visibility, and they are adding significant capacity to meet this insatiable demand." Caterpillar's soaring market valuation is also benefiting from its status as a leading manufacturer within a robust economic backdrop. Interactive Brokers Chief Strategist Steve Sosnick stated that investors began buying economically sensitive stocks after a report last month showed US economic growth was stronger than anticipated. "Caterpillar has been a primary beneficiary," Sosnick said, adding, "The reaction to the report was slightly delayed, possibly due to fund managers' holiday schedules, but the shift into cyclical, industrial, and other economically sensitive stocks clearly began in earnest last week." This economic optimism has allowed the stock to continue its advance even as rallies in other power equipment names have paused. Caterpillar has rebounded from a pullback last month, while shares of companies like GE Vernova and Vertiv remain in corrective phases. Wall Street is now closely watching the very markets where Caterpillar first made its name, many of which had been mired in a prolonged downturn. Jefferies analyst Stephen Volkmann told clients last month that within industries including mining and construction, Caterpillar "should see cyclical upside" this year.
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