Cummins Data Center Power Growth Confirmed, But Valuation Concerns Persist

What happened

A new Motley Fool article emphasizes that Cummins' data center power division is its fastest-growing and most profitable business, with an expanding order book. This echoes the DeepValue report's data showing Power Systems revenue grew 18% with a 22.9% EBITDA margin in Q3 2025, driven by AI-related demand. However, the report warns this strength is already reflected in the stock price, which has risen 54% over 12 months to a high P/E of 28.5x. Key risks include a prolonged North American truck downturn compressing Engine margins, potential peak Power Systems profitability, and ongoing hydrogen restructuring losses. Thus, while the data-center narrative is accurate, it may not justify current valuations without addressing cyclical and structural headwinds.

Implication

The article reinforces Cummins' strategic shift toward data-center power, but this does not alter the investment thesis that the stock is overvalued. At 28.5x P/E, the market assumes sustained high margins and demand, yet the report highlights risks like a multi-year truck downturn and hydrogen impairments. Strong cash flow and dividends offer downside protection, but earnings power could weaken if Power Systems margins compress or orders decelerate. This creates a skewed risk-reward profile favoring caution, with the report suggesting a better entry near $450. Ultimately, investors should monitor 2026 guidance and backlog trends closely for signs of durability or deterioration.

Thesis delta

The new article does not shift the core investment thesis; it merely confirms the crowded market narrative that data-center power is cushioning Cummins from truck weakness. However, it highlights the heightened reliance on this segment, emphasizing the need for investors to critically assess whether current valuations can withstand potential margin compression or demand moderation flagged in the report.