00:00I feel like it used to be this kind of, like, joking thing people would say at the beginning
00:03when Caterpillar was starting to enter sort of the AI power business, saying, oh, great,
00:07I guess AI, Caterpillar is an AI company now. After this earnings season, can we definitively
00:12say, yes, Caterpillar is an AI company now? Well, this will help clarify that narrative
00:18in investors' minds for sure. There had actually been some questions, of course,
00:22across Wall Street about the AI rally, AI infrastructure spending. Now you have this
00:27company reporting a record backlog, $72 billion at the end of the second quarter. They said on the
00:33earnings call they're getting orders for power equipment to power data centers out to 2030.
00:39I've been talking to investors this morning. They said that is calming a lot of the fear on Wall
00:43Street. Of course, they're also cautioning that a lot of this is driven by the macro, so nothing is
00:49certain about the AI trade. But right now, I mean, if you just look at this stock, it is clawing
00:54back
00:54a lot of those recent declines. I was looking through the earnings report. It's not just the
00:57power generation. Construction's up big, and there seems to be an AI thread that runs through most of
01:02their divisions. Yes. So the construction business sales there grew 35 percent year over year. That
01:09business, unlike power, had been in a bit of a downturn. Investors were waiting for it to pick up.
01:14And data centers are part of that story. You need construction equipment to build a data center.
01:19You also use a lot of copper. That flows to their mining equipment business. And it also helps,
01:26of course, it's also linked to the AI boom, so maybe some risk there. But the stronger that unit is,
01:33the stronger ground the stock is on, because the more drivers it has, if ever demand does falter for
01:38the power equipment. I was just thinking, you know, heading into Caterpillar, we got ISMs yesterday,
01:43and some of the commentaries specifically around materials has been really stark. Someone said,
01:47no normalcy in sight in the world of metals. It makes me yearn for the coronavirus pandemic chaos,
01:52which was more manageable than whatever this is that we are in now. And I just wonder,
01:57some of that angst over metals and materials, how that factors into Caterpillar's business right now?
02:02It is helping them directly. They actually just said on the call that demand for metals like copper is
02:08helping the mining equipment business. Sales there were up 20 percent in the quarter. That one,
02:13investors have kind of seen as the laggard, the last one to pick up. And the tighter the metal
02:19market remains, yes, a big problem for other companies. But it's a direct benefit to Caterpillar.
02:24Department of Footnotes, some of the profit update came from tariff refunds, which is obviously
02:29something that is not going to continue. And now we're going to have new tariffs. How do they
02:34portray that within their outlook?
02:36Yes. So Caterpillar tweaked its outlook for tariff costs a little bit down. They saw $2.2 to $2.4
02:42billion in expenses this year. Now $2.2 billion. That is, of course, a big number. Some of that
02:49being refunded now, $392 million in the most recent quarter. So again, big number, but investors think
02:56the company is managing it very well. And they're starting to lap some of the tariff headwinds. So
03:03that helps these growth numbers look good now that the company's kind of figured that out.
03:08Anything to be upset with here? Sounds pretty good and straightforward across the board.
03:12The tariff thing was called out as sort of a low-quality element of the beat, but it didn't
03:17contribute everything to that beat. That's less than a dollar of benefit. And they beat on adjusted
03:22earnings per share by two full dollars. Another thing an analyst said is backlog was really strong.
03:27Some investors might have had even higher expectations, but from the way the stock is
03:31reacting, it seems like most of them were met.
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