Plenty of companies you might not expect are reaping major rewards from the artificial intelligence boom. Cummins (NYSE: CMI), one of the world’s biggest truck engine makers, is one of them.
Demand for truck engines is weak now, thanks to the manufacturing sector’s stagnation. But Cummins also has a power systems segment, which has proven quite useful for the mushrooming data centers that serve the AI market.
Cummins primarily provides backup generators to data centers, but also battery storage, fuel cells, and microgrid controls. These sales are cushioning the blow of the weak truck market on Cummins.
Its overall revenue slipped 2% in the third quarter from a year earlier to $8.3 billion. But its power systems sales jumped 18% to a record $2 billion. And its distribution revenue, which includes some power products, climbed 7%, also hitting a record of $3.2 billion.
Sales analysis
The overall sales drop was “primarily driven by weaker North America heavy and medium-duty truck demand, with unit volumes declining 40% from a year ago,” Cummins CEO Jennifer Rumsey said in the company’s Nov. 6 earnings call. And she expressed uncertainty about when that market will rebound.
While truck engine production may hit a bottom this quarter, “the pace of recovery in these markets will depend on broader economic sentiment and the clarity of trade and regulatory policies,” she said.
Rumsey expressed a lot more enthusiasm for serving the data-center market, predicting a revenue increase for Cummins of 30% to 35% in that segment for 2025 as a whole. Growth is global, but it’s particularly strong in the U.S. and China. UBS analyst Steven Fisher predicts that data-center revenue could jump $1.5 billion in the next three years for Cummins.
The company’s booming data-center business is lighting a fire under its stock. It has returned 47% over the past year. It scored outsize gains in previous years too, thanks to its strong engine business, with annualized total returns of 31% over three years, 19% over five years and 21% over 10 years. That performance far outpaces the S&P 500 index in all the periods. Cummins has a market capitalization of $72 billion.
Overseas activity
As for its most recent earnings, Cummins profit fell 35% in the third quarter from a year earlier. Its gross profit margin eased to 25.6% from 25.7%. It fared better overseas than in the U.S., with foreign revenue increasing 2%.
That included a 16% increase in China. In addition to data centers, truck demand was strong in China. Sales in India gained 3%, with strong growth across Cummins’ segments, including data centers. The company gets 40% of its revenue outside the U.S. and Canada.
Cummins announced last year a goal to double its revenue from Africa by the end of the decade, as it helps bring power to the millions there who lack electricity. The Middle East and Africa accounted for 2% of the company’s 2024 revenue.
What shouldn’t be lost in all this is Cummins’ lifeblood of the last 80 years – building truck engines. Many experts anticipate that Cummins’ engine sales will rebound along with the heavy-duty truck market in general. Combined with growing revenue from data centers, that could get the company’s motor humming.
Comments