Hyperscalers Will Spend $750 Billion on AI This Year. Cummins Sells the Backup Power.
Key Points
Artificial intelligence is a hot capital investment theme, with projections for $750 billion in spending in 2026.
Power is a key constraint for AI, and Cummins is there to help in more ways than one.
At one point, Cummins (NYSE: CMI) seemed headed for the dustbin of history as the world moved toward electric vehicles. After all, the company's core business has long been making the large combustion engines that power trucks. But things have a habit of changing quickly, and those same engines are increasingly needed to do something else. You can thank the artificial intelligence (AI) infrastructure spending boom for making Cummins' technology increasingly relevant worldwide. Here's what you need to know.
The AI spending spree is boosting Cummins
Artificial intelligence has taken the world by storm, given how rapidly the technology seems to be advancing. At the end of the day, however, AI is just a fancy computer program. It needs reliable electricity to work. That's a problem given how rapidly companies are building out their AI platforms. It's estimated that up to $750 billion will be spent on AI infrastructure in 2026. A massive chunk of that will come from hyperscalers, which are creating giant AI data centers.
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The demand for power is straining the power grid's ability to provide it. Elon Musk's Space Exploration Technologies (NASDAQ: SPCX) had to build its own natural gas power plant to generate all the electricity it needed to supply its Colossus I and Colossus II data centers. Cummins is quietly helping AI companies do the same with backup power and, increasingly, prime power.
After all, Cummins' engines don't have to turn truck wheels; they can also generate electricity. And there's huge demand, with revenues in its power systems division up 19% year over year in the second quarter of 2026. The company's engine business saw revenue growth of just 6%. To be fair, Cummins has provided off-grid power for a long time to industries like mining, where operations are in remote locations. So this isn't new technology, just a new application of an existing technology.
Cummins isn't resting on its laurels
What's interesting here, however, is that Cummins sees the opportunity and is leaning in. The industrial giant is working to expand its offerings beyond just backup power, where it has seen the most strength in the AI build-out. The goal is also to provide always-on power to data centers that can't connect to the grid, the way it provides power to mining operations in the same situation. So this growth opportunity may actually get even more attractive as AI spending expands.
The one drawback is that Wall Street knows the story, and Cummins' 30x price-to-earnings ratio is well above its five-year average of 17.5x. However, if you believe strongly in the AI growth story, you still might want to do a deep dive, even if you just end up putting this stock on your wishlist.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cummins. The Motley Fool has a disclosure policy.