This industrial giant is off to the races in 2026 after a strong 2025. Why there's more upside ahead

A big rotation out of once-beloved sectors and into others trading at lower valuations has led to a volatility spike underneath the market’s surface. One stock that has trucked along higher despite the big moves is Caterpillar . Caterpillar has soared 32.8% this year already, while the S & P 500 is flat. That strong gain for the industrial giant comes after it roared 57.9% higher last year. Over the past 12 months, it has more than doubled. Last year, analysts told CNBC that the stock was riding the high from its related AI growth story, with many investors now seeing the name as an artificial intelligence play. CAT 1Y mountain CAT 1Y chart Not only has Caterpillar incorporated AI technology to streamline its manufacturing and reduce long-term production costs, but the stock has also expanded its operations in power generation. This has positioned it well to capitalize on rising demand for electricity consumption. The question now for investors is whether this momentum can continue. Caterpillar earlier this week moved into overbought territory, with its 14-day RSI hitting 74. Stocks with a 14-day RSI above 70 are considered overbought, meaning that they could soon be due a pullback. Despite this potentially bearish signal, many on the Street think more gains lie ahead. Bank of America analyst Michael Feniger last week raised his price forecast to $825 from $735, justifying a higher multiple as turbine demand broadens out. This revised price target offers upside of approximately 10% from Wednesday’s close. The analyst also reiterated his buy rating on shares of Caterpillar after the company posted a fourth-quarter earnings and revenue beat in late January, driven by its power generation division. Since that release, the stock is up around 18%. “The eyepopping growth in CAT’s power gen unit is clear (Q4 +44% YoY) yet investors are missing that oil and gas increased 24% YoY as well. CAT’s portfolio is in a ‘sweet spot’ for the gas infrastructure build out,” he wrote. Trading the stock Fairlead Strategies analyst Will Tamplin noted that while Caterpillar’s stock still appears “somewhat stretched,” its upside momentum is still in place. “So we could see a brief period of consolidation and a digestion of the latest up move, particularly the one year to date,” he told CNBC in an interview. “But overall, the broader trend for the stock is higher and supported by upside momentum.” The analyst added: “That trend is still very much intact — that bullish trend, for now — and really shows no concerning signs of upside exhaustion in our work. Our overbought, oversold metrics aren’t showing any sell signals yet.” Tamplin also said that while the picture is still bullish, any investors seeking a new position in the stock might find it best to wait for a better price closer to Caterpillar’s 50-day moving average. The stock’s current 50-day moving average sits at $643.60, as of Thursday morning. “When a stock is able to keep stair stepping higher above that 50-day and just keep making new highs, it certainly suggests that there’s still an appetite for the stock. It just implies that buyers are more aggressive than the sellers are,” he said.