Will CAT's E&T segment report book-to-bill ratio below 1.0x in Q1 or Q2 2026?

The resolution criteria has a critical nuance: CAT does not directly disclose segment-level book-to-bill. The fallback resolution requires E&T-related backlog to decline sequentially in BOTH Q1 and Q2 2026. Given a record $51B total backlog (+71% YoY) with extending lead times and 4 orders >1GW recently booked, sequential decline in both quarters is a very high bar. Even if order flow moderates from the torrid pace, deliveries remain capacity-constrained through mid-2026 since the capacity expansion (doubling large reciprocating engine, >2x gas turbine) doesn't come online until late 2026/early 2027.

The $51B backlog with 62% delivering within 12 months implies ~$31.6B of deliveries in 2026. For E&T backlog to decline, deliveries must exceed new orders. With power gen >$10B and growing 30% YoY while capacity is constrained, and hyperscalers engaging weekly/monthly on new projects, new orders likely continue at a strong clip. The Myth Meter's warning about overestimating demand duration operates on a 2-3 year timeline, not 2 quarters. Nuclear/SMR competitive threat is years from impacting orders. Slightly higher probability than base because of the unresolved debate about cycle vs. structural shift — a sudden hyperscaler CapEx pause is low-probability but not zero.

An edge case worth considering: CAT reports total backlog, not segment-level. If CI&RI backlog grows while E&T slows, total figures could mask an E&T decline. However, E&T is the primary driver of backlog growth — it contributed 48% of Q4 2025 revenue and its STU grew +37% vs. lower rates in other segments. The combination of extending lead times for Titan 250/350 turbines, Solar Turbines being capacity-constrained with a record year expected again in 2026, and active large-order pipeline (>1GW orders) makes it structurally difficult for E&T book-to-bill to fall below 1.0x within 6 months. The capacity expansion that could tip the balance doesn't arrive until late 2026/early 2027.

Record backlog, extending lead times, capacity-constrained Solar Turbines, 4 orders >1GW, weekly/monthly hyperscaler engagement — all point to demand well exceeding supply in Q1-Q2 2026. The capacity expansion doesn't arrive until late 2026/early 2027, so supply constraints persist through the entire resolution window. For book-to-bill to drop below 1.0x you'd need a sudden demand cliff, and the committee found no evidence of one. Data center CapEx from hyperscalers remains robust. E&T diversification across oil & gas, marine, and rail provides additional buffer.

The resolution criteria require either direct book-to-bill <1.0x disclosure OR E&T backlog declining in BOTH Q1 and Q2. Both paths are extremely unlikely given current conditions. Even in a sudden hyperscaler CapEx freeze scenario, existing orders with extending lead times would buffer E&T for multiple quarters. The backlog-to-revenue ratio (total backlog $51B vs ~$32B annual E&T revenue) implies roughly 18+ months of E&T work even at zero new orders. The Myth Meter's diverging narrative gap is a 2-3 year concern per the committee's own assessment — not actionable within this 2-quarter window.

Stress-testing the bearish case: even if a major AI capability plateau triggered a hyperscaler CapEx pullback, power generation is only ~31% of E&T revenue (~$10B of ~$32B). The other 69% across oil & gas, marine, and rail would need to simultaneously weaken for E&T book-to-bill to fall below 1.0x. Plus lead times are extending, meaning orders placed now deliver in 2027+, so near-term order flow has structural support from the existing pipeline. The installed base of Cat engines creates service revenue regardless of new orders. Only significant tail risk: coordinated global recession affecting all E&T subsegments simultaneously.

Record $51B backlog (+71% YoY), capacity constrained through mid-2026, extending lead times for large turbines. Demand clearly exceeds supply through the Q1-Q2 2026 resolution window. Book-to-bill staying above 1.0x is the base case by a wide margin.

Resolution requires E&T backlog decline in BOTH Q1 and Q2 if no direct book-to-bill disclosure. With $51B total backlog, E&T as the primary growth driver, and capacity expansion not arriving until late 2026, sequential declines in both quarters are very unlikely. The 4 orders >1GW and Solar Turbines record year expectation support continued strong order flow.

Slightly higher than peers to account for the unresolved debate about whether data center buildout is cyclical vs. structural. Historical parallels (fiber 2001, LNG 2015) show overcapacity cycles can arrive faster than expected. However, even in the cyclical scenario, the committee assessed the timeline at 2-3 years, not 2 quarters. The diversification across oil & gas, marine, and rail limits E&T-specific vulnerability.