Cummins Inc. (CMI) | The Buildout — AI Infrastructure

The Verdict

Cummins makes engines, the components that go into them, and the power-generation equipment that turns an engine into electricity. Its connection to AI infrastructure runs entirely through the electricity side of the data center: the standby generator sets that keep a facility running when the grid cannot, plus the natural-gas gensets and microgrid equipment for continuous prime power. The company also sells the installation, service and parts that surround that equipment through its own distribution channel. Everything else it does is trucks and off-highway machines, so the AI-linked demand sits inside a company whose revenue is still mostly tied to heavy-duty and medium-duty truck cycles.

Earnings Beat

Q2 2026 revenue was a record second quarter at $9.5B, up 9% year over year, with gross margin of 26.1% against 26.4% a year earlier. The standout was Power Systems: record revenue of $2.3B, up 19%, at a 24.5% EBITDA margin, up 170 basis points, on data-center demand. Net earnings were $932M and operating cash flow was $1.5B, a record for a second quarter, versus $785M a year earlier.

Management tone: Management extended a second consecutive full-year raise in Q2 2026 while trimming or lowering four of five segment margin guides and cutting Distribution's outright; they framed the trims as mix and incentive-compensation effects and deliberate investment rather than demand weakness. Their language shifted from cyclical-trough framing on North American trucks in Q1 to improving momentum in Q2, and from waiting on the draft EPA rule to a detailed phased-transition plan. They were direct on the roughly $200M 2027 incentive-comp reset and on the warranty cadence into 2027, deflected a question on next-year power-generation capacity, and left one medium-duty prebuy question to be followed up offline.

Management Guidance

Management guided FY2026 revenue to +10% to +13% and EBITDA margin to 18% to 18.5%, with an effective tax rate of about 23% and capital investments of $1.35B-$1.45B. Segment guides: Engine revenue +9% to +14%, Components +8% to +13%, Distribution +9% to +14%, Power Systems +14% to +19%; global power generation +15% to +25%; Accelera revenue of $350M-$400M against a $260M-$290M loss. Management said 2026 growth would continue to be constrained by capacity, that tariffs should be immaterial for the rest of the year, and that second-half incentive compensation would run about $25M a quarter lower than in Q2, with a reset worth roughly $200M in 2027. The Section 232 engine offset program has not been finalized; guidance reflects management's assumptions about it.

Trajectory

Revenue has moved from $8,174M in the first quarter of FY2025 to a record $9,457M in the second quarter of FY2026. The growth is led by power generation: China power-generation equipment sales rose 88% year over year in Q2 and North America power generation rose 19%, both tied to data-center demand, while North American truck volumes recover off cyclical lows. Management has raised the FY2026 revenue guide twice, from +3% to +8% to +10% to +13%. Margins tell a more mixed story. Gross margin was 26.1% in Q2 versus 26.4% a year earlier, and the EBITDA rate fell about 90 basis points to 16.5% on tariffs and higher incentive compensation tied to record full-year projections. Warranty costs are running at historical lows, in the low 2% of sales, which sets up a headwind as new platforms launch.

The Model

The model projects FY+1 revenue of $37,514M and EBITDA of $6,434M, a 17.15% margin, then FY+2 revenue of $40,800M and EBITDA of $7,303M, a 17.9% margin. The near term is anchored by a power-generation business management says is capacity-constrained, with large-genset lead times extending into the second half of 2028, and by a North American truck market recovering from cyclical lows. FY+2 assumes the first step of the 20 GW capacity expansion, due online in 2027, converts into shipped generator sets, and that the phased EPA 2027 engine transition passes without an air pocket.

Projections are the median of 4 independent model runs. The model’s revenue sits 1.2% below analyst consensus.

Management guided FY2026 revenue to +10% to +13% and EBITDA margin to 18% to 18.5%, with an effective tax rate of about 23% and capital investments of $1.35B-$1.45B. Segment guides: Engine revenue +9% to +14%, Components +8% to +13%, Distribution +9% to +14%, Power Systems +14% to +19%; global power generation +15% to +25%; Accelera revenue of $350M-$400M against a $260M-$290M loss. Management said 2026 growth would continue to be constrained by capacity, that tariffs should be immaterial for the rest of the year, and that second-half incentive compensation would run about $25M a quarter lower than in Q2, with a reset worth roughly $200M in 2027. The Section 232 engine offset program has not been finalized; guidance reflects management's assumptions about it.

What Could Go Right — and Wrong

Looking Ahead

The next 12 months turn on two execution items: the phased North American On-Highway 2027 engine transition and the first step of the 20 GW power-generation capacity build. X15 and X10 limited production starts in January 2027, with full production by the third and fourth quarters of 2027, and the next-generation B platform follows in January 2028. Power-generation growth stays capacity-gated through 2026 because the new capacity does not arrive until 2027. Management expects some moderation in demand next year but says it should not be as abrupt as previously anticipated.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Cummins reports five segments: Engine, Components, Distribution, Power Systems and Accelera. It describes its portfolio as advanced diesel, electric and hybrid powertrains; integrated power generation systems; critical components such as aftertreatment, turbochargers, fuel systems, controls, transmissions, axles and brakes; and zero emissions technologies like battery and electric powertrain systems. The AI-infrastructure link runs entirely through the electricity side of a data center: standby generator sets for backup power, and increasingly natural gas gensets and integrated microgrids for prime power.

Cummins builds and assembles across its own plants and sells through its own Distribution channel, which handles sales, service, application engineering, aftermarket parts and repair. The 10-K lists an engine plant in Whitakers, North Carolina; components plants in North Carolina, South Carolina, Mexico and the United Kingdom; Power Systems plants in Indiana and India; and Accelera sites in North Carolina. It also runs China joint ventures that build power-generation equipment for Chinese data-center demand.

Business Segments

Competitive Landscape

Cummins competes segment by segment, and the 10-K names the sets. In Power Systems the rivals are Caterpillar, MTU (Rolls-Royce Power Systems) and Kohler/SDMO, along with INNIO, Generac, Mitsubishi Heavy Industries and regional generator assemblers; alternator competitors include Leroy Somer, Marathon Electric and Meccalte. In Engine, Cummins faces independent manufacturers Weichai Power, Yuchai and Deutz, plus truck makers that build some or all of their own engines, including Daimler, PACCAR, Traton, Volvo Powertrain, Ford, China First Auto Works, Dongfeng, CNH Industrial and Isuzu. That overlap makes PACCAR, Daimler and Traton both customers and competitors. Management's own framing of the position: there are not many players in this segment who can provide not just the products, but the service and the installation on a global basis.

Supply Chain

Cummins sits at the heavy end of the power chain: it builds engines and components, turns them into generator sets and integrated power systems, and sells them through its own Distribution channel. The 10-K flags single-source risk on critical parts but names no specific supplier.