UBS: AI Data Center Demand to Accelerate by 2027, Caterpillar and Two Other Stocks to Benefit
nashnova research
UBS says AI data center orders are accelerating with multi-year capacity bookings piling up, naming Caterpillar, Cummins, and Quanta Services as the top beneficiaries — but warns that slowing order momentum could cap further upside.
Who gets the orders first in this data center buildout?
UBS analyst Steven Fisher flagged three names in an October 16 note: Caterpillar (CAT) and Cummins (CMI) ride power-generation equipment demand; Quanta Services (PWR) rides grid investment.
Caterpillar told UBS its power-gen demand remains "exceptionally strong" and the company is expanding capacity.
This means → the core bottleneck for data centers is not servers — it is power. Whoever builds generators and switchgear gets paid first.
What is slowing construction down?
Industry experts at the Singapore Data Center World Expo cited equipment availability and manufacturing capacity as the top constraints — cooling, power, and generation suppliers are all racing to shorten lead times.
Customers increasingly favor prefabricated and modular systems to speed up construction and cut on-site labor needs.
In plain terms = the data center buildout is shifting from "assemble on-site" to "build in a factory, ship and snap together" — suppliers who can ship at volume win share.
What are behind-the-meter power and 800V DC, and why do equipment makers care?
Behind-the-meter generation — producing power on-site rather than relying entirely on the utility grid — is drawing growing interest. But UBS expects most projects through 2028-2029 to stay grid-connected with conventional diesel backup.
The industry is also transitioning to 800-volt DC power distribution, expected to deploy between 2027 and 2029. This means → lower copper use, less heat, and simpler distribution systems.
The eventual mix of on-site generation, storage, and grid connection will determine how large a share equipment manufacturers capture.
How big is the data center pull on overall construction?
UBS estimates data centers directly account for roughly $63 billion of the U.S. $1.3 trillion non-residential construction market — about 5%.
Factor in indirect spending on manufacturing facilities, power infrastructure, and related projects, and data centers drive 20%-30% of total non-residential construction activity — and most of its growth.
This reflects a broader reality: the economic footprint of data centers extends far beyond the buildings themselves — it is reshaping the investment cycle for industrial construction and power infrastructure.
Can Caterpillar keep beating expectations?
Caterpillar's power and energy segment posted above-consensus Q2 profit with an incremental margin of 39% — but the company itself warned that level "may not be sustainable."
UBS says the market broadly expects Q3 and Q4 incremental margins to stay elevated but pull back from the Q2 peak.
Fisher adds: even if the absolute backlog remains high, any material slowdown or flattening in sequential order growth would make it harder for Caterpillar's stock to keep outperforming.
Could the AI investment boom cool off suddenly?
UBS acknowledges that advancing technology will lower computing costs, and smaller AI models may see wider adoption — both of which could dampen demand for new data centers.
The report also questions the financial stability of newer cloud providers, noting CoreWeave's recent bond sell-off.
This means → industrial suppliers' customer bases include not just mature hyperscalers like Microsoft and Google but also newer players with thinner financial footing — customer quality may become a key variable as investors assess how durable today's backlogs really are.
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