S&P 500 Industrials P/E Exceeds 30x as AI Data Center Boom Lifts Caterpillar, Others Over 50%
The S&P 500 industrials sector's price-to-earnings ratio has surpassed 30 times, well above its historical average of about 20 times, driven by a surge in AI data center construction. Alphabet raised its 2024 capital expenditure guidance to between 195 billion and 205 billion U. S. dollars. Caterpillar and GE Vernova, top holdings in the XLI ETF, have each gained over 50% year to date, with Caterpillar up nearly 160% from its low two years ago. Lockheed Martin rose over 10% after earnings, while Delta Air Lines climbed 45% over the past year.
The price-to-earnings ratio of the industrial sector within the S&P 500 index has exceeded 30 times, significantly deviating from the long-term historical average of around 20 times. U. S. corporations and the technology industry are racing to build artificial intelligence data centers. Alphabet, the parent company of Google, stated in its earnings report that its capital expenditure this year will reach between 195 billion and 205 billion U. dollars, up from the previously guided range of 180 billion to 190 billion.
Upgrading rural power grids is critical to meet the electricity demand of data centers. New substations, enhanced high-speed fiber optic communications, and the development of new energy-efficient battery technologies are all essential. Large quantities of power generation and backup equipment, heavy construction machinery, and electrical control software are necessary for large-scale deployment.
Shares of machinery and electrical equipment manufacturers, which account for 20.89% and 14.16% of XLI's holdings respectively, have risen this year. Caterpillar, the largest holding in the ETF, and GE Vernova, the third-largest, have both gained more than 50% year to date. Caterpillar has risen nearly 160% from its low point two years ago. GE Vernova's backlog of orders still stood at 176 billion U. dollars as of the end of the second quarter. Emerson Electric, the 29th-largest holding in XLI, is trading nearly 20% higher compared to July 2024. Hubbell, the 60th-largest holding, has posted a cumulative gain of 30% in the two-year period since July 2024.
Lockheed Martin, one of the top 20 components of the industrial index and part of the defense industry, saw its share price rise more than 10% after its earnings release. Lockheed Martin and its peer RTX have both gained about 35% over the past year. Aerospace and defense companies account for 25% of the XLI index's sector allocation. Traditional aviation is also a key part of the industrial sector, including Boeing, one of the top 10 holdings in XLI, and Delta Air Lines. Delta Air Lines' share price has risen 45% over the past year.