UBS Sees AI Infrastructure Demand Accelerating in 2027: 3 Stocks to Watch

AI investment has largely been associated with chipmakers and software companies. But as data center developers expand capacity, another group of businesses could benefit: the industrial equipment manufacturers and engineering firms supplying the infrastructure behind the AI boom.

$UBS Group AG(UBS)$ expects demand for AI infrastructure to accelerate in 2027, even as supply-chain constraints persist. In an October 16 research report, analyst Steven Fisher said industry experts attending Data Center World Expo in Singapore reported accelerating orders, rising multiyear capacity reservations and confidence that investment would continue beyond 2027.

The outlook puts three U.S.-listed companies in focus: $Caterpillar(CAT)$, $Cummins(CMI)$ and $Quanta(PWR)$.

📌 Key Takeaways

• AI infrastructure demand: UBS expects data center investment to accelerate in 2027, potentially supporting industrial equipment and engineering businesses.

• Three companies to watch: Caterpillar and Cummins are exposed to power-generation equipment demand, while Quanta Services could benefit from electrical-grid investment.

• Power remains a bottleneck: Equipment shortages and manufacturing constraints could slow project delivery, even as orders increase.

• Investor focus: The key question is whether growing infrastructure demand translates into sustained revenue and earnings growth at valuations that justify the risks.

🏗️ Why AI Infrastructure Is Becoming a Bigger Investment Theme

Building and operating AI data centers requires more than advanced processors. Facilities need reliable electricity, backup power systems and extensive electrical infrastructure to support increasingly demanding computing workloads.

As developers add capacity, demand can extend beyond technology suppliers to companies that manufacture power-generation equipment or build the infrastructure needed to connect data centers to the grid.

$UBS Group AG(UBS)$ also highlighted growing interest in behind-the-meter power generation, which allows data centers to generate electricity on-site rather than relying entirely on the public grid.

However, $UBS Group AG(UBS)$ expects most projects through 2028 or 2029 to remain primarily grid-connected, with traditional diesel backup systems. The eventual balance between grid connections, on-site generation and energy storage could influence which suppliers capture the greatest benefits.

The broader investment thesis is therefore not simply that AI demand will rise. It is that the physical infrastructure required to support that demand could become an increasingly important source of industrial growth.

⚡ 3 Stocks to Watch

1️⃣ Caterpillar (CAT): Power Generation Equipment

$Caterpillar(CAT)$ is widely known for its construction and mining equipment, but its power-generation business provides another potential avenue for exposure to data center investment.

As facilities require dependable electricity and backup power, demand for generators and related equipment could support Caterpillar's business. According to the UBS report, the company told analysts that demand for power-generation equipment remained exceptionally strong and that it was expanding production capacity.

The potential opportunity extends beyond the initial sale of equipment. Sustained data center construction could also support demand for related services and maintenance.

What investors should watch: Whether Caterpillar can expand production quickly enough to meet demand, and how much incremental growth its power-generation business contributes to overall earnings. Its construction-equipment business and broader industrial exposure remain important factors in its financial performance.

2️⃣ Cummins (CMI): Backup Power and Engine Technology

$Cummins(CMI)$ is another potential beneficiary of growing demand for reliable data center power.

The company manufactures engines and power-generation systems, including equipment used in standby-power applications. As data centers expand, backup systems become increasingly important because interruptions to electricity supply can disrupt critical computing operations.

The opportunity is not limited to new construction. A growing installed base of generators can also create demand for servicing and replacement equipment over time.

Nevertheless, data center demand is only one part of Cummins' business. Its performance also depends on other end markets, including commercial vehicles and industrial applications.

What investors should watch: Growth in power-generation sales, production capacity, order visibility and profitability. Investors should distinguish the potential contribution from data centers from the company's performance across its other businesses.

3️⃣ Quanta Services (PWR): The Electrical Infrastructure Connection

While Caterpillar and Cummins are more directly exposed to power-generation equipment, $Quanta(PWR)$ offers a different angle on the same theme.

Quanta provides infrastructure solutions for the electric power and other utility-related markets. As data center developers seek sufficient electricity to operate new facilities, additional investment may be required in grid connections, transmission systems and related electrical infrastructure.

This could support demand for Quanta's engineering and construction capabilities, particularly where power infrastructure needs to expand alongside new data center capacity.

The company's published second-quarter 2026 results showed total backlog of approximately $53.4 billion, providing visibility into contracted and estimated future work. However, backlog is not the same as guaranteed revenue or profit, and project timing can change.

What investors should watch: Backlog growth, project execution, labor availability, margins and the pace at which infrastructure projects convert into recognized revenue. The extent to which data center-related work contributes to overall growth also matters.

📊 Three Different Ways to Play the AI Infrastructure Theme

The three companies are exposed to different parts of the infrastructure buildout. Caterpillar and Cummins are positioned around equipment demand, while Quanta's opportunity is more closely tied to electrical infrastructure investment.

This distinction matters because the timing of equipment orders, construction projects and revenue recognition may differ considerably.

⚠️ What Could Limit the Opportunity?

Despite the favorable demand outlook, several risks could prevent the AI infrastructure boom from translating into stronger returns for investors.

• Supply-chain constraints: Shortages of power equipment, cooling systems and manufacturing capacity could delay construction and limit near-term deliveries.

• Project delays or cancellations: Data center development depends on financing, access to electricity, permitting and customer demand. Announced projects do not always proceed as planned.

• Changing power technology: Advances in power distribution, energy storage and on-site generation could change equipment requirements and the mix of suppliers benefiting from new investment.

• Broader industrial weakness: Inflation, interest rates and slower activity in other end markets could offset some of the gains from data center demand.

• Valuation risk: Investors may already be pricing in substantial future growth. Even strong business results may not produce attractive stock returns if expectations are too high.

For shareholders, the central issue is whether incremental AI-related demand can produce durable earnings growth, rather than merely a temporary increase in orders.

🔎 What Comes Next?

Three developments could help investors assess whether the opportunity is becoming more tangible:

• Order growth and backlog: Continued increases in orders and project commitments would provide evidence that demand is translating into business activity.

• Production and execution: Companies must demonstrate that they can expand capacity, manage costs and deliver projects on schedule.

• Earnings and valuation: Future financial results will help investors determine whether AI infrastructure is becoming a meaningful growth driver and whether current share prices adequately reflect the risks.

The 2027 outlook remains a forecast, and the benefits will not necessarily arrive at the same pace for all three companies.

🧭 The Bottom Line

$UBS Group AG(UBS)$'s outlook suggests that the AI investment cycle could create opportunities well beyond semiconductor manufacturers and software providers.

$Caterpillar(CAT)$ and $Cummins(CMI)$ offer exposure to power-generation equipment, while Quanta Services provides a route into the electrical infrastructure needed to support data center expansion.

The longer-term opportunity depends on whether rising AI-related investment translates into sustained orders, profitable growth and stronger cash generation. For investors, monitoring those fundamentals — alongside valuations and execution risks — will be more informative than relying on the AI theme alone.

💬 Your Turn: Join the Discussion

As AI data center construction accelerates, which part of the infrastructure value chain do you think has the strongest long-term potential: power-generation equipment, electrical-grid construction or semiconductor technology?

Share your thoughts below. Useful comments may receive Tiger Coins! 🪙

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