2026-02-19 20:18:00
Here are some numbers to consider:
Shares of Deere & Company are up 12% today and 44% so far this year
Shares of CAT rose 60% last year and are up 31% year-to-date.
Caterpillar and Deere don’t rally on order books. The jump in DE stock today came on a quarterly earnings beat on basically every metric.
CAT, meanwhile, has been on a tear since late January when it posted a record $19.1 billion quarter and disclosed a $51 billion backlog — up 71% year-over-year. The stock has surged roughly 30% year-to-date and recently hit all-time highs near $790.
DE stock daily
Deere clearly says the cycle is bottoming
The headline numbers from this morning’s DE call: net sales up 18% year-over-year to $8 billion for equipment operations, EPS of $2.42 versus the Street’s $2.02 estimate, and a raised full-year net income guide to $4.5–5.0 billion. All three business segments posted higher sales. Construction & Forestry top line was up 34%. Small Ag & Turf was up 24%.
But the real story is in the order books.
Management said the C&F order book has risen over 50% in the past quarter and is now at its highest level since May 2024. Orders for construction and compact construction equipment were both up mid-teens. They raised the industry outlook for North American construction and compact construction to +5% and bumped their own C&F net sales guide to +15%.
On large ag — still the weakest segment — the tone shifted meaningfully. Combine early order programs came in better than feared. Large tractor order velocity has picked up, with the order book now stretching into Q4. Used equipment inventories are finally clearing: late-model 8R tractors (model years ’22 and ’23) were down 20% sequentially in Q1 alone.
CFO Josh Jepsen said it plainly: “The developments over the course of the past three months has strengthened our belief that 2026 marks the bottom of the current cycle.”
That’s a pretty definitive statement from a company that tends to be conservative.
The RAMP trade — Real Assets, Margin Potential
I have been writing about something I’ve called the RAMP trade for awhile and the thinking is that companies with thin margins and heavy assets can use AI to boost productivity without facing the risk of disruption.
CAT and DE might be the ‘picks and shovels’ part of that trade but they also stand to directly benefit. CAT has effectively become an AI infrastructure play hiding inside a 100-year-old industrial company. Power generation sales surged 44% in Q4, driven by demand for large generator sets and turbines for data center applications. The Power & Energy segment became CAT’s largest business by revenue for the first time. The company announced multi-gigawatt power generation orders for data center campuses and is on track to double its large engine capacity by 2030.
The companies are also aiming to use AI to boost their own margins and integrate AI into their machines.
The macro read
Take a step back and think about what these two companies are collectively telling you:
Infrastructure spending is real and accelerating. Both companies cite U.S. government IIJA funding, data center construction, and contractor confidence as major tailwinds. Deere’s C&F head Ryan Campbell said he’s been out visiting customers across geographies and the optimism is broad-based — backlogs are growing and fleet replacement is becoming unavoidable.
The ag downturn is stabilizing, not worsening. China resumed buying US soybeans. The $12 billion Farmer Bridge Assistance program is providing near-term liquidity. Fleet age is at elevated levels and the used market is clearing. None of this screams “boom,” but it does scream “the worst is behind us.”
Tariffs are a headwind, but manageable. Deere expects $1.2 billion in tariff costs this year and is roughly price-cost neutral including that burden. CAT faces $2.6 billion in tariff headwinds. Both companies are absorbing it through mitigation, pricing discipline, and production efficiencies rather than passing through outsized price increases.
The construction cycle has legs. Between infrastructure mega-projects, data center builds, rental refleet demand, and declining interest rates, this isn’t a market that looks like it’s about to roll over. Housing remains soft but the rest of the mix is carrying it.
Are they expensive? By historical standards, yes. DE trades at roughly 32x trailing earnings. CAT is at about 41x. But both companies are at or near trough earnings with improving order trajectories. If you’re buying cyclicals at peak multiples because earnings are depressed and about to inflect higher, that’s the textbook playbook.
The heavy equipment makers are telling you the same thing the ISM manufacturing data has been hinting at: the industrial economy is stabilizing, AI capex is creating real physical-world demand, and the worst of the ag/construction downturn is behind us.
Whether that justifies these valuations at these levels is a different question. But the signal from the order books and about the economy is increasingly clear.
