US manufacturers pour hundreds of millions into AI data center buildout

Economists warn AI buildout echoes late-1990s fiber boom and risks overshoot

U.S. industrial manufacturers from Caterpillar to Ford are pouring hundreds of millions of dollars into factories and acquisitions to meet demand from artificial-intelligence data centers, according to The Wall Street Journal. The pivot is helping to drive the manufacturing sector, with manufacturing having risen to its highest level since 2022 and the Institute for Supply Management’s purchasing index holding above the expansion threshold for seven straight months. Economists warn the buildout echoes the late-1990s fiber-optic boom and risks overshooting underlying demand.

The pivot highlights how AI infrastructure is reshaping heavy industry, pulling capital into established industrial manufacturers even as inflation, high interest rates and weak consumer demand weigh on the broader industrial economy.

Caterpillar is investing $725 million to expand generator production at an Indiana plant, the WSJ reported. The company has converted a Kansas plant to produce turbine engines popular with data centers and is resuming production of 10-megawatt generators last made in 2022. Power-hungry data-center developers have turned the once-prosaic business of electricity generators into the equipment maker’s leading source of profit.

“If we can get more units out, they’re asking us to give them more,” Caterpillar Chief Executive Joe Creed said of data centers during the company’s second-quarter earnings call with analysts.

Cummins is investing $450 million to increase generator production, following a $200 million investment completed last year. The company expects its data-center-related sales to rise by 80% to $9 billion in 2030 from 2026. Cummins’s generators are now mostly used for standby power in data centers, but the company said this spring it plans to offer new larger generators starting in 2028 that can be grouped at data centers as a primary power source. The generator’s 130-liter engine—roughly 65 times the average size of a U.S. car engine—will be powered by natural gas and produce four megawatts of electricity.

Still, Cummins is expanding cautiously. Jenny Bush, president of Cummins’s power-systems business, said the Indiana-based company is expanding production in smaller increments and limiting plant expenses. “Everybody is naturally worried about when the build-out gets completed,” she said. “We’ve been trying to utilize as much of what we already have before we build anything new.”

Ford Motor is looking to data centers to repurpose excess production capacity for electric-vehicle batteries. The automaker’s new Ford Energy subsidiary expects to spend $2 billion redirecting batteries to electricity storage at data centers and other large industrial users of power. Demand for EVs is in a slump, leaving automakers with fewer batteries than originally anticipated. Ford’s interest in energy storage comes as its auto business is smaller than it was a decade ago.

Eaton, a century-old manufacturer of circuit breakers, switchgear and other electrical equipment, has spent $13 billion on acquisitions since 2025, including businesses that have expanded its data-center operations. Data centers and distributed IT accounted for 21% of the company’s sales last year, up from 14% at the end of 2023. Eaton’s second-quarter sales overall rose 21% from a year earlier. Chief Executive Paulo Ruiz said, “What we have ahead of us in terms of demand is still incredible.”

Manufacturing in support of the data-center business is helping to offset market conditions that are holding back other industrial sectors. Inflation, high interest rates and rising material costs are slowing down construction, auto sales and demand for consumer durable goods.

The Institute for Supply Management reported that 20% of the manufacturing GDP last month had an index reading that signaled contraction, up from 5% in June. The group said the chemical industry accounted for most of the contraction, attributing the weakness to the rising price of oil, which many companies use as their primary feedstock for chemicals.

Rising demand for steel and aluminum and a 50% tariff on imported metal have handed domestic producers unprecedented pricing power this past year. Tariffs have pushed U.S. prices for steel and aluminum to among the highest in the world. Higher prices for Caterpillar’s equipment and generators aren’t holding back sales — the company said price increases contributed nearly $600 million to its second-quarter operating profit, which was 50% higher than a year earlier. Caterpillar reported a record $20.5 billion in quarterly revenue, and its shares are up about 50% since the start of the year. The company’s backlog of generator orders from data centers stretches as far out as 2030.

Cost pressures and oversupply risks exist for data centers, said Willy Shih, a management practice professor at Harvard University. Evolving technology could make future data centers smaller, cheaper and less power-hungry. He said the current build-out reminds him of the dot-com era of the late 1990s, when huge investments were made in building fiber optic networks that remained unused for 20 years.

“The inevitable correction to this is that buyers will find a cheaper way and companies that put on too much capacity end up with a boom-and-bust cycle,” Shih said.